Tobacco Documents Online

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1 Our original factory at 20th Street in Richmond 2 Our second Richmond factory built on Stockton Street in 1937 3 Our smoking tobacco factory on 19th Street in Richmond 4 Some of the new leaf storage warehouses being built in Louisville 5 One of the warehouses in Richmond where leaf is stored 6 In Richmond (foreground) the Archbell warehouse for storage of imported leaf. (Background) Imported leaf department building 7 Louisville factory showing new wing (not yet completed). The old building ends just to the left of the entrance door shown

text page Highlights of the Year 4 Summary 7 Financial 9 Taxes 10 Investment in tobacco 13 Increased facilities 18 Sales and Advertising 20 Distribution 22 Quality controls 22 Personnel 22 Conclusion 23 tables Highlights of the Year 5 Uses of added funds 10 Comparison with Industry center Philip Morris operations center Quarterly results center Audited Statements 24 charts Growth of sales 6 Use of sales revenue 12 Prices 13 Sales and inventories 18 Investment per job 23 other f eatures Map: Scope of Operations center Some of our stockholders 3 Philip Morris products .30-32

Philip Morris & Co. Ltd., Incorporated ~- <. . ..- _ _-. v _ : .. .. annuaUr.eport, 1951 directors G. P. Brauburger O. H. Chalkley W. C. Foley L. G. Hanson W. H. Hatcher officers Alfred E. Lyon, Chairman O. Parker McComas, President L. G. l4anson, Vice President and Treasurer C. T. Ames, Jr., Vice President E. W. Dinwiddie, Vice President W. C. Foley, Vice President Alfred E. Lyon O. Parker McComas H. E. Riddell K. H. Rockey W. B. Ryan, Jr. W. H. Hatcher, Vice President G. J. Henn, Vice President Ray Jones, Vice President W. E. Liebetrau, Vice President H. R. Blum, Controller C. H. Kibbee, Secretary and Assistant Treasurer Cornelia Craig, Assistant Secretary transfer agents Guaranty Trust Co. of N. Y., 140 Broadway, New York registrars The National City Bank of New York The Commercial National Bank & Trust Co. of New York counsel Conboy, Hewitt, O'Brien & Boardman, 39 Broadway, New York auditors Lybrand, Ross Bros. & Montgomery, 90 Broad Street, New York I I

S 9 Philip Morris dividends regularly increase the incon:e of thousands of nlell and lUO1nPl1 like these stockholders In New Orleans, Optician Samuel Carleton pauses from an afternoon stroll with his dog. r11rs. J. O. Berliner of Holly- wood, California, mounts a rare stamp in her collection. A collector of antiques, Dr. Killin- ger of Greencastle, Indiana, winds his 125-year-old clock. 'A~ a1r. Alichael Bernica, railroad machinist of Cheyenne, ff'yoming, is putting his four rhildren through col- lege with the help of his dividends. Octogeiearian Charles Hopper at his desk in his Grand Rapids, Michigan, home. Mrs. Harry Allendorfer of Johnstown, Pennsylvania, often uses her dividends to purchase gifts for her naval officer son and twin daughters. Mr. George Kurtzweil, Spanish American war veteran, has retired in Boise, Idaho, after an active • engineering career. He says his dividends are a welcome addition to his pension. In Passaic, New Jersey, Mrs. McCabe listens to her favorite program while she knits.

....~._.._.. - - ~.:,,.;~.~ our cigarette sales again increased ~ at a greater rate than the industry average and amounted to more than 11.4 % of the cigarettes manufactured in the United States last year. investment in tobacco leaf was increased • in accordance with our continued rate of growth and our stocks of tobacco are at our hightest year end level. a program of expansion was started to increase our productive and storage capacity in line with our sales growth. our permanent capital was increased approximately $29,000,000 through sale of additional preferred and common stock. pre-tax earnings were higher on the increased stockholder investment, but earnings per share after taxes • were slightly reduced on the common stock because of a 30% increase in taxes on income. on the common stock, regular cash ~ dividends of $3 per share and an extra dividend of 5% payable in common stock were declared. I 0 .0. r• -10 ~

total sales of .................................... $305,804,331 provided f or ... revenue stamps .......................... 147,312,301 tobacco and other costs of manufacturing and distributing Philip Alorris products ..................... 108,831,875 interest on borrowed money and other financial costs .................... 1,855,734 payments to employees and insurance, hospitalication, pensions and other benefits. .. .. .. .. .. .. .. .. . 124.00 .54 3.00 3.62 240,449,303 15,303,185 789,256 5,995,401 8,518,527 income taxes for support of State Governments ....................... federal normal and surtax on income ................................ federal excess profits tax ................ 2,686,000 balance..........•••..••••••••••••••••••• 16,689,145 available for: payments of'cash dividends to shareholders preferred ............................. 1,253,047 common .............................. 6,994,632 future operation and risk ................. 8,441,466 investment in Philip Morris o f ............. 227,139,146 was represented by ... unsecuredfoans........•••••••••••••.••.• fundeddebt,........•...••••••••••••••••d interest of preferred stockholders ........ interest of common stockholders ......... 12,717,276 648,000 15,064,000 total 289,115,186 75,000,000 32,000,000 31,510,101 88,629,045 1951 per common share $131.16 63.18 46.68 .80 5.45 .28 6.46 97.42 32.17 13.72 13.51 38.02 1950 total $255,752,488 125,046,000 92,463,252 1,579,245 11,496,806 464,000 9,400,000 171,220,801 55,500,000 32,000,000 18,965,100 64,755,701 per common share $127.97 62.57 46.27 .79 5.76 .23 4.70 120.32 .39 3.00 4.26 85.67 27.77 16.01 9.49 32.40 K] Qo O tl` cr ^t3

I box-full of the Philip Morris blend starts on the way to the making machine. Rolls of cellophane are delivered to the packing floor on the original shipping pallet. Here an operator prepares to re- load his machines. .

I summary We are pleased to be able to report that our sales growth con- tinued at a far greater rate than the industry as a whole. In the calendar year 1950 the industry manufactured 392 billion cigarettes, an increase of 1.8% over 1949. Philip Morris sales of 43 billion cigarettes during the same period were 17.7% over 1949. Increases in our sales over the first three months of 1950 continued during the final quarter of our 1951 fiscal year. Net sales totaled $305,804,000, an increase of $50,052,000 over the 1949-50 fiscal year. On July 28, 1950 a price increase of 2.8% was effected to offset higher costs of tobacco, labor and operating supplies. This accounted for $5,665,000 of our increased sales total but $44,387,000 resulted from our higher volume of business. Export sales of $8,041,000 showed im- provement over the preceding year's $6,627,000, but were still restricted by lack of dollars abroad. From our sales revenue we provided $12,717,276 for wages, salaries, bonus and benefits to employees. Our net earnings before tax provision increased $9,919,961 and amounted to $35,089,145 as against $25,167,184 in fiscal 1950. After all taxes, including nine months of Federal Excess Profits Tax, our net of $16,689,145 compared to $15,303,184 in the previous twelve months period when no Excess Profits Tax existed. A total of $8,247,679 was provided for cash dividends to our stockholders. To provide added capital $8,441,466 of net earnings was retained toward the future needs of the business. An extra common stock divi- dend was declared in February payable in common stock in April, in the ratio of one share for each 20 shares held. Our financing program was completed in June in accordance with the plan outlined in last year's annual report. Of the 333,077 shares of common stock issued, 97% was subscribed for at $48 per share. Together with the sale of 130,610 shares of new 3.90% Series of Cumulative Preferred Stock, this enlarged our capital structure by $28,492,956 to accommodate the financial needs of our larger business. Stockholder equity was increased during the year to 52% of total investment Shipping cases, each holding 50 employed in our operations. cartons of cigarettes, are auto- $200,151,000 is invested in leaf tobacco and current assets of matically filled, sealed and $241,889,000 were 2.4 times current liabilities. By August of d t le d bo cars lo d t . a e ruc s an x on o last year we had repaid all of our outstanding bank loans, but new loans to finance our leaf requirements were later secured.

These amounted to $75,000,000 on March 31, 1951. Our program of additions to production and warehouse facilities was begun in September, and an amendment to our registration statement outlining the expenditure of approxi- mately $11,000,000 was duly filed. With the completion of this program we will have the facilities to produce more cigarettes in a normal day-time shift than last year when over-time and extra shift operations were adopted to meet the continued up- trend of our business. In this period of emergency everyone must bear his propor- tionate share of the Nation's financial costs. All companies are now subject to increased normal taxes and surtaxes, and to Excess Profits Taxes retroactively applied to a portion of last year. Normal taxes and surtaxes are assessed uniforml our income and the income of all other companies. Profits Tax, however, is assessed according to e previous base period. Our earnings have successive- 8 from year to year and are, because of this, ta funds. R1any hours of examination and analysis of business records were spent in preparing the Financial Vice President L. G. Hanson discusses withh his staff and advisers plans for securing financing program. Left to right: H. B. Dalby, Consultant; Mr. Hanson; If'". J. Hammerslo Banker; C. H. Kibbee, Assistant Treasurer; Paul Smith, Attorney; H. R. Blum, Controller.

I financial higher rate than earnings of companies whose business volume compared to the base period had been reduced, remained un- changed, or increased at normal rates. We are concerned with the unequal hardship worked by Excess Profits Taxes on our employees and shareholders, all of whom helped to make possible the Company's past growth and recent position. However, we hope a continued uptrend will, in a measure, offset this disadvantage. The added common and a new issue of preferred stock of last year's financing improved our capital structure. Their issuance reduced the proportion of funded debt, raised the preferred stock portion and increased the common stockholders' equity. With the addition of $8,441,466 of net earnings retained in the business, the common stockholders' equity at the end of the fiscal year amounted to 58% of our capitalization, with funded debt and preferred stock accounting for 21% each. By replacing a substantial portion of our then outstanding bank loans with permanent capital, the financing improved our borrowing facility and provided an ample and sound founda- tion for future financing in case of need. In the normal course of business, bank loans which had been made to carry the financial peak load were repaid in full in early August. Our larger needs, however, made it advisable to increase our investment in leaf tobacco and new purchases were financed with new bank loans in accordance with our customary practice. The funds derived during the year from financing, from bank loans and from operating profits were applied to increasing our investment in leaf, expansion of production and storage facil- ities, to payment of the regular cash dividends on the Com- pany's capital stock, and to take care of increasing costs of labor and materials. The table on Page 10 shows in more detail the sources from which funds were secured and the purposes to which they were applied. Had taxes continued at the old rate, our pre-tax income of $35,087,145 would have made ample provision for increased cash dividends, bonus distribution to employees and substantial addition to the capital investment required by our business. Under the new tax law, however, our earnings were taxed at a

the uses made of added cash f unds and their source (fiscal year ended March 31) taxes The amount received by Government from the sales of the Philip Morris Company is larger by far than that received by any group benefiting from or making tangible contribution to the Company's operation, whether as stockholder, employee, farmer, supplier or distributor. The taxes charged against our last year's sales totaled $169,718,000, or 55% of sales. This amounted to $44,828 for every employee, about $10,000 for every stockholder, or about $130 for every retail establishment that sold Philip Morris cigarettes. N 0 .~, uses of funds sources of funds Toward Completion of Expansion Program. $ 1,531,000 Profit from Operations . . . . . . . . $37,370,000 Other Expenditures for Operating Depreciation, Provided . . . . . . . . 909,000 Facilities . . . . . . . . . . . 767,000 Sale of Additional Capital Stock .... 28,493,000 To Increase Leaf Tobacco and Other Supplies 61,228,000 Increased Bank Loans . . . . . . . . 19,500,000 To Increase Cash and Receivables ... 1,588,000 Increase in Other Current Liabilities ... 8,573,000 To Increase Other Assets.. ...... 286,000 Other Sources . . . . . . . . . . . 92,000 To Pay Interest on Borrowed Capital ... 1,948,000 Repurchase of Preferred Stock Subject to Sinking Fund . . . . . . . . . . 516,000 For Prior Service Payment under Retirement Plan . . . . . . . . . . . . . 116,000 For Incentive Bonus Plan . . . . . . . 311,000 To Pay Taxes on Income Federal Normal Tax and Surtax ... 15,064,000 Excess Profits Tax . . . . . . . . 2,686,000 State Income Tax . . . . . . . . 648,000 To Pay Cash Dividends. . . . . . . . 8,248,000 rate one-third higher than in the preceding year. This reduced our cash funds derived from net earnings. To conserve cash we therefore decided to distribute to the stockholders a share in the additional Company earnings in the form of a stock dividend after the end of the fiscal year. This gave to the stockholder an opportunity either to hold his increased share in the Company's equity for its future earning power or to receive in cash his share in the business increase by selling his stock dividend. On our books a transfer of $5,828,850 was made from earned surplus to capital and capital surplus, representing the value of the stock distributed as a dividend. 10

I I excise taxes on cigarettes To the cigarette consumer the ex- cise, or revenue stamp tax, is a special sales tax of about 98% added to the sales value from which the manufacturer provides for the cost of his raw materials and all other requirements of his business. Last year cigarette smokers paid $1,263,000,000 in excise taxes on the cigarettes they consumed. This is a third more than the total amount of money received by the tobacco farmers of the nation for the tobacco crop. This stamp tax is described as a tax upon the domestic con- sumption of cigarettes, but it must be paid by the manufacturer prior to the making of the cigarettes which are to be taxed. The manufacturer is reimbursed through his sale of the cigarettes. Losses which may occur between manufacture and collection of the sales price are borne by the manufacturer. Excise taxes paid by Philip Morris alone last year were $150,000,000. The financing of these stamp taxes required a continuous investment on the part of Philip Morris of about $12,000,000, a substantial portion of working capital. The investment of the industry, as a whole, required to finance this tax levied upon the domestic consumption of cigarettes, amounted last year to about $120,000,000. cigarette taxes at retail In addition to the $1,263,000,000 of taxes paid at the manufacturer's level last year by the domestic consumers of cigarettes, States and Municipalities collected spe- cial sales taxes from the same consumers totaling about $450,- 000,000. The retail price paid by the majority of consumers for a package of cigarettes is about 201/2 cents. This covers a reve- nue stamp of 7 cents, about 31/2 cents on the average in state and city sales taxes, 4 cents to the farmers who grow the tobacco and to other suppliers, and only about 3 cents each to distribu- tors and manufacturers. These special sales taxes are now imposed at the retail level on cigarettes in 42 States and a number of Municipalities. Most of these taxes have come within the last decade. They range from 1 cent to 8 cents per package and are included in the retail price of cigarettes. These special taxes accounted for the greater part of the increased retail price of cigarettes over the past ten years. taxes on income There must also be deducted from our sales dollar the increased Federal taxes on income. The normal tax 11

I how we used our sales revenue 11111M FEDERAL EXCESS PROFITS TAX ~ OTHER FEDERAL TAXES I ~ STATE TAXES `: r PREFERRED W= COMMON i TO~PROVIDE FOR BUSINESS NEEDS ;140 '' 120 100 , p 80 _' 60 ' 40 " 20 0° 0 20 , 40_ 60 801 100, 120 __= 140 ~_~-"~1A(Ctl Of~DO~LLAR~S O and surtax are assessed equally against all taxpayers according to the amount of their income. The Excess Profits Tax, however, is not. This tax disproportionately takes away gains which result from success, growth, and increased efficiency accomplished in the period before July 1, 1950. During the fiscal year just ended, it reduced the share accruing to our stockholders and employees from our business success to a larger degree than in the average company. As a consequence, net earnings from which our Com- pany's dividend distributions and bonus payments can be made are a smaller proportion of our pre-tax earnings. excess profits tax credit Based upon our average earnings in the fiscal years of the base period when we were growing, and allowances for capital invested in Philip Morris during and since that base period, our Exess Profits Tax credit was about EMPLOYEES I INTEREST FARMERS AND OTHERS^ I I TOBACCO AND OTHER MFG.. AND DISTRIBUTION COSTS. AND OTHER FINANCIAL COSTS b i i i GOVERNMENT FOR STATE AND FEDERAL I 1 TAXES ON INCOME ; STOCKHOLDERS ` CAI H DIVIDEND FIUTURE `

~~ NET SELLING PRICE PER 1000 PHILIP MORRIS BRAND CIGARETTES (left scale) ~ PRICE OF FLUE•CURED TOBACLO* (nehtstalet 70 RE VENUE STA MPS PER 1000 CIGA RETTES (left swle) 60 50 /0000 40 30 2C 1C 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 7. 6. 5. °3. 2. 1 prices VSeuttt 11 S eCVt a1 AS~iCUltuitf $22,600,000. After applying normal taxes and surtaxes, this equals $4.96 per common share and is the amount we were permitted to earn after payment of Federal normal tax and surtax on income. All income in excess of this amount was taxed at the rate of about 65% during the past fiscal year. Our Excess Profits Tax credit will be subject to certain adjustments for the next year under the now-existing tax law and earnings in excess of this credit will be taxed at 77% for the year ending March 1952. investment in tobacco Our continuing rate of growth during the past four years has increased our share of the domestic cigarette les by 70% a d: consequently our tobacco requirementsyhave risen Last year-we again increased our investment in leaf tobaccohfor future use ~ h~` On account of the uncertainties of the world sitnation we ~oug an additional amount., During t igherFtha.n ~ 1-1 voIume 19 51 0 re u eaf _ starage ~ave- als~ -Ieased iive ourr~leaf depa ~ oper car ~ ~~ ~>n a 0 he ~past season leaf pr e s~ avraged about 15%a iri the re; ceding yer: This factor :; an ,- d our larg~r ~ ,, ~°` urchases is ~ reflected in the increase of our tobacc9 ~ " ,~~~~ investment -to 00,000,000, 33% higher,than last ear. ~ Y. ~. To accomrnodate ou arger reirements~ :e. ~~aY~ ~ng~~ uses ~ri ichmond and _2I `in Louis (ditiona ware ous pace in both cities± ~ments adequate and suitable room for t] , eaf stores while iging.~~~r~£~ ~ run ®

With his forklift truck, the operator can stack half- ton hogsheads of tobacco with ease and precision. These prize tobacco plants will each produce hundreds of tobacco seeds for a future crop. Twenty, men in Richmond discuss rates and plans for the coming year. Counterclockwise around table from wall left are: C. P. Jones; A. C. Britton, Factories Manager, Richmond; C. T. Ames, Jr., V.P., Production; L. C. Crump; G. P. Brauburger and B. Sobol, Attorneys; E. 1L1. Powers; R. !V. Norris, Personnel Manager, Richmond; R. P. Roper, Director of Personnel; J. E. Lentie, V.P., T.IV.I.U.; John T. Duke; J. E. Harris; Dwight M. Hash, 0. C. Davis; Edward t11. Dunnavant, V.P., Local 203; Mathew H. Williams, Pres., Local 203; S. E. Blaine, 1st V.P., T.IV.I.U.; George Benjamin, V.P., T.1G'.I.U.; James T. Singleton; Clarence G. Marley, V.P., Local 209. 14

Union President Mathew Williams speaking on TV said, "Philip Morris has just about the best working con- ditions in American in.dustry today." 11'. C. Bowles receives his share of the prize won for efj'iciency by the production team of which he is part. this section may be removed for reference On a field trip President McComas takes a moment to chat with a truckman delivering Philip Morris at a jobber's place o/ business in Chicago. 15

MEDITERRANEAN AREA (INSET) TYPES BY DISTRICT TYPES BY DISTRICT CAVALLA - LATAKIA ® XANTHI - LECCE ~ CATERINI ~ PRILEP ® IZMIR (SMYRNA) - DJEBEL - SAMSUN CYPRUS BAFRA  PACKING AND SHIPPING CENTERS TYPE U.S.TYPES CLASSIFICATION TYPE U.S.TYPES CLASSIFICATION TYPE U.S.TYPES CLASSIFICATION GEORGIA o - CLARKSVILLE r MARYLAND W ~- SO. CAROLINA W ~~ PADUCAH ca t W `, -• BURLEY ~ EASTERN CAROLINA ~ 24 HENDERSON GREEN RIVER ~ - MIDDLE BELT DARK VIRGINIA ~ ® ONE SUCKER ~ OLD BELT L - SUN CURED - PERIQUE 7 ® 05M ~ 0 m A64111111101, MEDITERRANEAN SEA 1~t BLACK SEA ® ® W r :l U 0 - SALT LAKE CITY ,FATERn/ DIEB BDURGAS tH B m a LEAF STORAGE POINTS LEAF MARKETS •Not shown: Warehouse distribution points in Honolulu, Hawaii, and in Butte, Montana. FT. WORTOH Q SAN ANTONIO MAIN OFFICE 0 ti OFFICES AND FACTORY LOCATIONS • 0 WAREHOUSE DISTRIBUTION POINTS's

Philip Morris balance sheet statistics I assets Cash & Marketable Securities -1951 1950 1948 1947 I (000's untitted) 1946 $ 9,115 $ 8,652 $ 5,264 $ 4,857 $ 4,024 $ 2,486 $ 2,320 $ 2,455 $ 3,175 $ 3,158 Receivables 11,935 10,810 9,173 7,196 6,391 7,914 10,063 11,017 8,219 6,255 Inventories 220,839 159,611 132,444 93,913 98,812 112,745 87,280 69,948 70,570 53,143 Other Current Assets - ' - I - ~ - ~ - ~ 1,867 206 1 4,290 4 102 ~ - Total Current Assets 241,889 179,073 146,881 105,966 109,227 125,012 99,869 87,710 82,066 62,556 Net Property Account 10,360 8,971 8,301 6,828 6,468 4,989 5,110 3,471 3,723 3,729 Prepaid Items & Other Assets 1,337 1,051 1,117 937 : 1,049 1,391 1,929 3,304 3,286 2,534 Total Assets 253,586 189,095 156,299 113,731 116,744 131,392 106,908 94,485 89,075 63,819 liabilities Notes Payable 75,000 55,500 30,000 - 5,500 44,000 16,000 5,000 -8,000 Federal Taxes 17,760 9,415 7,811 3,431 3,440 2,681 6,992 ; 6,028 7,917 6,212 Accounts Payable 3,020 5,057 6,773 ' 5,753 : 3,866 2,574 5,047 • 6,952 ' 5,427 3,425 Other Current Liabilities 5,667 3,402 , 2,987 i 1,797 ~ 1,834 ~ 1,369 ~ 2,255 ~ 1,645 ~ 1,774 t 1,795 Total Current Liabilities 101,447 73,374 47,571 10,981 14,640 ; 50,624 30,294 19,625 ~ 15,118 19,432 termDebts,et2:0 g T300erves for Contingenciec. - ~ Net Worth 32,000 32,000 32,000 ' 32,000 ' 11,500 11,300 11,500 11,700 ' 1949 2371 237 ~ 500 j - 1 250 1 - I - I - _ 76,491 70,513 69,604 ; 69,268 65,064 63,360 62,257 t 49,387 120,139 83,721 ' Total Liabilities and Capital 253,586 Net Working Capital 189,095 156,299 ' 113,731 ' ' 116,744 131,392 106,908 94,485 89,075 " 68,819 balance sheets at March 31 1945 1944 1943 1942 - -~::~ -- - - 140,442 105,699 99,310 94,985 94,587 . 74,388 - 69,575 68,085 66,948 43,124 ' Net Asset Value of Common Stock 38.01(i) 32.40. 28.04 24.80. 23.95 23.68 22.56• 21.94* 21.29* 19.28* *-adjusted to present capitalization (1) Before 5% stock dividend. ~ ~ ~ ~ iffMated Not ure fna '"d'raisa H th. R.portedR_ " ,toX sate iad t.yt:d at 38% 16,689,145 1 6.62 ~ 8.50 'In January the tax rates which applied retroactively to the fiscal year just ended were adopted by the U. S. Government. Prior to that time and following the end of the preceding fiscal year different tax rates were believed to be applicable. Therefore, the estimated net earnings reported at quarterly periods are different from the results as determined under the rate finally applied by the U. S. Government. Figures for the year 1942 are on a consolidated basis with English subsidiary.

comparison of Philip Morris operations 1951 5 9 f with the aggregate figures of its four ma jor co'mpetit s 1950 1949 I Philip Morris Sales (1) $305,804 As '/o of Sales 100.00% Competitors $2,329,961 As % of Sales 100.00% Philip Morris $255,152 As % of Sales 100.00% Competitors $2,316,574 As % of Sales 100.00% Net Income Before Taxes 35,087 11.47 224,604 9.64 25,167 9.84 205,497 8.87 Taxes (2) 18,398 6.01 109,817 4.71 9,864 3.86 82,977 3.58 Net Income 16,689 5.46 114,787 4.93 15,303 5.98 122,510 5.29 Total Investment (Bank Loans, Funded Debt, Capital & Surplus) 227,139 74.28 1,600,353 68.68 170,721 66.75 1,569,072 i 67.73 Total Inventories 220,839 72.21 1,473,723 63.25 159,611 59.28 1,418,013 61.21 Net Income before Taxes plus interest . . . $ 37,035 as Per Cent of Total Investment . . . . 16.30% $ 243,450 15.21% $ 26,835 15.72% $ 224,946 14.34% Net Income before Taxes as Per Cent of Net Worth 29.21 24.42 30.06 22.11 Analysis of Capital Structure Long Term Loans $ 32,000 21.03% $ 493,448 34.91% $ 32,000 27.65% $ 522,657 37.39% Preferred Stockholders 31,510 20.71 158,374 11.21 18,969 16.39 158,374 11.33 Common Stockholders & Surplus 88,629 58.26 761,514 53.88 64,752 55.96 716,791 51.28 (1) Includes Revenue Stamp Taxes (2) Includes Federal and State Taxes on Income and Federal Excess Profits Taxes analysis of Philip Morris operations Net Sales $305,804,000 and ~ _- - financial ~ = position LE $255,7` analysis of operations Net Sales 100% 100 Cost of Sales: Revenue Stamps 48.17 48.8 Other 32.25 32.8 Gross Operating Profit 19.58 18.2 Shipping, Selling, General and Administrative Expense 7.36 7.6 Net Operating Profit 12.22 10.6 Other Income .03 •C Total Income 12.25 10.7e Income Deductions .78 .9t Net Income before Taxes 11.47 9.(/ Federal and State Taxes on Income 6.01 i 3.8r Net Income after Taxes 5.46 ~ 5.9p Net Income as Per Cent of Net Worth 13.89 ~ 18 s analysis o f financial position Net Property Account as Per Cent of Tangible Net Worth 8.62 Current Liabilities as Per Cent of Tangible Net Worth 84.44 Total Liabilities as Per Cent of Tangible Net Worth 111.08 Current Liabifities as Per Cent of Inventories 45.94 . 10.7' , 87.64 125.E6 45.97 Long Term Debt as Per Cent of Net Working Capital 22.79 i 30.~1 204BQ16?12 Figures for year 1942 are on consolidated basis with English subsidiary.

the fiscal year of Philip Morris & Co. Ltd., Inc. ends March 31. The figures of the four major competitors are on a calendar year basis. For example, the 1950 comparison is between the Rlarch 31, 1951 fiscal year of Philip Morris and the 1950 calendar year for the other companies. Coiapetitors _ $228,372 100.00% $2,286,066 20,660 9.04 191,171 8,162 3.57 ~,.-' ~' - .i_:=~e~=~`:~ 47 As % of ' Philip As % of =~ Salas Morris Sales Competitors 100.00% ; $171,258 100.00% $2,169t816 8.39 9,526 5.56 60,501._ ~,.. ,. WW~Y. of ~ Philip As % of ~$p/ Morris Sales pe~t1~~ $170,906 100.00% J_965,82Q ~ Q 3.43 3,491 2.04 ~f 6i01 3,293 1.93 12,498 5.47 -113,436 4.96 'A 6,035 3.52 394 ~ 4,958 2.90 6 R x 60.64 1,559,457 68.22 102,513 59.86 t 3~744 644 107,104 62.67 074 a ~ ~ ~.~ 132,444 57.99 1,416,384 61.96 93,913 54.84 272,877 $8.66._~'. ~ 98,812 57.82 $ 21,760 $ .210,207 $ 10,389 ` 9,45 ~ 10.13% 410 27.01 22.83 13.51 $ 32,000 29.50% $ 537,951 40,63% ; $ 32,000 20,505 18.90 :,.,158,374 11,96, 55,986 51.60 _-627,632 47.41 ' 20,954 49,559 31.22% 20.44 48.34 . ~20.93-;A 8,251 4.83 tf7,082 $ 9,301 °~49 Q35 8.68% i~ $ 32,000 31.49% 8U,532~.,V ~ 47,865 47.11 ,~.~,10! $A2 8 '52,000 $228,372,000 $171,258,000 $170,906,000 $178,686,000 ! $185,299,000 4 $177,901,000 ~ $141,047,000 ; $112,565,000 89 49.41 50.32 49.74 53.18 r 48.46 ~ 54.23 j 53.08 ~ 62.88 82 33.20 35.34 37.10 36.25 3 37.37 31.37 ~ 27.52 14.56 29 17.39 14.34 13.16 ~ 10.57 14.17 14.40 19.40 22.56 62 ~ 7.66 8.55 ~ 7.46 ! 6.13 6.52 7.03 8.81 9.67 67 9.73 5.79 5.70 4.44 7.65 7.37 10.59 12.89 G7 ~ .04 .34 ~ .40 1.30 .14 .08 .13 .17 14 9.77 6.13 i 6.10 5.74 7.79 7.45 10.72 13.06 5 0 .73 .58 1.27 .83 .51 .38 .36 .40 E4 ~ 9.04 5.56 4.83 4.91 7.28 7.07 10.36 12.66 F6 ~ 3.57 j 2.04 ~ 1.93 1.47 3.61 3.33 5.45 5.74 98 ~ 5.47 3.52 2.90 3.44 3.67 3.74 4.91 6.92 ~ 16.34 i 8.56 ; 7.12 ~ 8.88 ~ 10.46 ~ 10.50 11.13 ~ 15.78 72A t 10. 85 ~ 9.68 ~ 9.29 1 7.21 7.86 5.48 5.98 7.56 64 62.19 4 15.57 21.03 73.14 46.60 31.00 24.30 39.40 E6 ~ 1Q4.34 ~ 61.29 ~ 67.73 89.75 64.36 49.16 43.11 39.40 S7 35.92 11.69 14.82 44.90 34.71 28.06 21.42 36.57 27 j 3Y.22 ~ 33.69 ~ 33.83 15.46 16.24 16.89 17.48 - ._ a

Statements of income for the fiscal record of Philip Morris operations (000'sornitted) ycars ended March 31 ,. ~ ._.......~ `r 1951 1950 1949 1948 1947 1946 1945 1944 1943 1942 $255,752 $228,372 $171,258 $170,906 $178,686 $185,299 $177,901 $141,047 $112,565 208,985 188,656 146,694 148,412 159,799 159,051 152,290 113,682 87,175 46,767 39,716 24,564 22,494 18,887 26,248 25,611 27,365 25,390 19,470 17,499 14,641 12,752 10,953 12,080 12,507 12,420 10,884 27,297 22,217 9,923 9,742 7,934 14,168 13,104 14,945 14,506 172 101 5880) 683(2) 156 267 149 183 193 27,469 22,318 10,511 10,425 8,090 14,435 13,253 15,128 14,699 2,302 1,658 985 2,174(3) 1,476(4) 9400) 672 515 445 25,167 20,660 9,526 8,251 6,614 13,495 12,581 14,613 14,254 9,864 8,162 3,491 3,293 4660) 6,692 5,930 7,682 6,462 15,303 12,498 6,035 4,958 6,148(6) 6,803 6,651 6,931 7,792 ~ ' { + 5,996 5,246 3,497 3,498 2,998 4,497 4,496 4,260 4,470 789 818 836 863 817 866 844 831 633 8,518 : 6,434 1,702 597 2,333 1,440 1,311 1,840 2,689 7.26 : 5.84 2.60 2.05 2.67(6) 5.94 5.82 6.10 8.00 7.26 5.84 . 2.60 2.05 2.67 2.97 2.91 3.05 4.00 1,998,467 1,998,467 1,998,467 1,998,468 1,998,470 999,235 999,235 999,207 894,026 Net Sales (Including Revenue Stamps) $305,804 Cost of Sales (Including Revenue Stamps) 245,937 Gross Operating Profit , 59,867 Shipping, Selling, General & Administrative Expense 22,497 Operating Profit ` 37,370 Other Income 99 Total Income 37,469 Income Deductions 2,382 Net Income (Before Taxes) 35,087 Federal and State Taxes on Income 18,398(5) Net Income 16,689 Cash Dividends Declared (Common) (Preferred) s 6,995 1,253 a Net Income Retained in the Business(') ! 8,441 k Per share earned on common shares outstanding E 6.62 ` Earned per common share adjusted to present common hares outstanding i I ' 6.62 : Common Shares 12,331,544 Includes $409,890 profit on sales of securities after deduction of $137,000 of Federal income taxes thereon. Including renegotiation recovery of $310,000 in connection with government contracts and net premium of $133,865 received on sale of 2%%Debentures. Including premium of $472,000 paid on retirement of 3% Debentures, and provision of $500,000 for contingencies. Includes $242,000 war-time packaging ~hangeover loss (after deduction of $250,000 charged to reserve for post-war and other contingencies)~,' also includes $275,000 for settlement of claims in connection with rescission of •subscriptions to Cumulative Preferred Stock, 3.60% Series. Includes Excess Profits Tax of $2,686,000. Reflects a refund of Federal Excess Profits Taxes of prior years under carry-back provisions of the Internal Revenue Code amounting to $1,867,528 and a credit of $300,000 representing excessive pro- visions of prior years' taxes. , Subject to minor surplus adjustments (except in 1951 when 5% stock dividend was declared). After stock split 2 for 1. Including provision of $250,000 for post-war and other contingencies. Figures for the year 1942 are on a consolidated basis with English subsidiary. f

0 ~

Q increased production and In addition to uninterrupted -1•0-hour week operation in all storage f acilzties factories last year, a considerable amount of over-time and extra shift production was necessary to keep abreast of sales demands. The continuing harmonious relationship between production management and manufacturing personnel kept the accelerated operation at top efficiency. By mid-sununer the continued growth of our business made it clear that additional plant facilities were needed in both Rich- mond and Louisville. Our expansion program was begun in September and was estimated to cost about $11,000,000. Progress has been made toward the completion of a plant addition on the site adjoining our factory in Louisville and construction of additional leaf warehouses has advanced there. The expansion program includes new stemming and leaf han- dling facilities in Richmond and Louisville appropriate to the dollar value-sales and invenfories 2.5 2.0 1.5 1.0 I J r S i~ I ALES NVENTO CALEN RIES DAR YEARS DECEMBER 31 M S ~ I ALES NVENTO FIS RIES CAL YEARS END MARCH 31 ED MAR CH 31 ~ 1 1 H 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1 ~ ~7H FOUR LARGEST COMPETITORS POlIIP MORRIS COMPANY _, . 441~* = I ihese four canpames ther with the PhTg Marri Cartpany coinprise 6rer 909G of tthq arette Industry tn t~e Unite~$tetes tJ~ t3 .MR= -R qo O 18 300 250 200 50 00 50

In Richmond, President .11cComas, our chief administratire o_flicer. addressed our entire personnel group of LT00 people and their fumilirs. Fle outlined the plans for enlarging thr scope of our operations and explained our rapital expansion program. Flere he is pointing out the iruy in which the job rrstronsibiluY of each person fits into that of each other one to achieve an e,ljectire result. A similar meeting in Louis- ville was attended by the family groups of our 1,300 people there. increased capacity of the manufacturing operation. We expect to complete the Louisville units in the fall of 1951 and the full completion of our program is expected to be realized some time in 193-2. Upon completion our Louisville plant will be one of the largest production units in the industry, and our overall one-shift manufacturing capacity will be increased by about 40%. Rolls of cigarette paper and cello- phane, stacked handily on ship- ping pallets by their manufacturer, go by elevator to one of our mak- ing floors for final use. Problems of expanded night shift production are discussed by Mr. l1lcFadden, Plant Manager, Louisville, with Mr. Schwieckert, Night Super- intendent (standing) and Mr. Graham, Personnel Manager (left).

sales and advertising Nose Test - "And let the smoke roll slowly through your nose." The excitement of the day's events is transmitted to mil- lions via our sponsored pro- gram by Walter Kiernan. Miss Tobacco receives a Philip Morris from V.P. Ray Jones, at the N.A.T.D. Convention. Training and the broad knowledge that our salesmen have of their Company and the products they sell aids them in their daily contacts with distributors and the public. Well fortified with point-of-sale pieces and training in their use, they are often able to help the retailer in the field increase not only his sales of our cigarettes but sales of his other non-tobacco merchandise as well. A friendly relationship exists between our sales per- sonnel and the distributors and retailers of tobacco products, and we are grateful to them for their contribution to the devel- opment of our sales during the last year. Schools and colleges have found our sales and merchandis- ing training devices, as well as our annual report, useful in their classes on advertising and business policy. Our advertising has continued truthful, strong and hard hit- ting and provides both a stimulus and an aid to our salesmen and distributors in presenting our products to the favorable notice of more and more smokers. In addition to radio and television our advertising is placed in newspapers, magazines, trade journals and billboards. On radio and television we sponsor several shows and employ spot announcements and a news broadcast as well. Our shows on radio and TV are selected primarily for their entertainment value but at the same time they are planned to provide varied opportunities to many people throughout the country. The response of these vast audiences to our sales messages was reflected in the year's results. Sergeant Henry H. Lee home from Korea for a surprise meeting with his wife and daughter on the Truth Or Consequences program. I

In front of the store Johnny and the manager hold the placard whi-h epitomizes Philip Morris' relation- ship :cith retailers. total ad vertising costs amorGnt to a f raction of a cent per package Mr. Lyon discusses a tour of the Youth portunity Program with Horace Heidt. Two southern belles with Johnny in the Tobacco Festival at Richmond. Our sponsored programs include: Philip Morris Night with Horace Heidt, CBS Radio, 9:30 P.M. Sunday, and CBS-TV, 9:00 P.M. Monday; Truth Or Consequences with Ralph Edwards, CBS Radio, 9:30 P.M. Tuesday, and CBS-TV, 10:00 P.M. Thursday; Philip Morris Playhouse, CBS Radio, 10:00 P.M. Thursday; One Man's Opinion with Walter Kiernan, ABC Radio, 8:55 A.M. Monday through Friday; Modern Romances, ABC Radio, 10:45 A.M. Monday through Friday; Johnny Olsen's Luncheon Club, ABC Radio, 12:00 Noon, Monday through Friday; and Dizzy Dean, baseball commentaries before most and after all Yankee Stadium games, on WABD and WPIX, New York TV stations. All times given are E.S.T. .+ I Cr- 4 aM- %0

distribution We added 11 strategically located warehouses for the distribu- quality controls The interior of our new Richmond laboratory. personnel Mrs. Annie M. X'illiams is in retirement on her Philip Morris pension as a former Philip Morris employee. Also a stockholder, she is telling Mr. Norris about one of her hobbies, collecting Eng- lish china for her home in Richmond. tion of our products, bringing the total to 45 at the end of the year. Cigarettes in our warehouses and en route were held to about two weeks sales requirements, insuring factory freshness in our products when they reach the retail counter. Vice President TG'. C. Foley is in charge of purchasing of supplies and distri- bution of finished products. His close observation of sales trends as reflected by the movement of our products through distribution channels helps us to schedule production in close relationship to sales demand. He also acts as a consultant on our advertising and sales. Last year we completed our new laboratory in Richmond. Our Research Department constantly studies our scientific testing methods and the characteristics of materials we use to deter- mine their best application. Methods for making, packing and shipping of our products are under continual review. In addition to making hundreds of tests for the maintenance and control of product quality, research was carried out on the physiology of smoking and the pharmacology of smoke. Find- ings are not only of importance to us as manufacturers but also to the consumers and have been made available to other re- searchers in the broad field of medical knowledge. The Philip Morris team was increased in number to 3,786 during the year, and the fine human relationship that makes our organization in office and factory so effective was maintained by all personnel. The accident record in our factories continued to be low and the general health level high. Days lost for acci- dent or illness averaged less than half of one per cent, com- paring favorably with the industry of which we are a part. No major changes occurred in the management structure. In a regular meeting of the Board of Directors in September, a motion proposed by a non-officer Director was unanimously carried, Mr. Lyon not participating, to the effect that: "The Directors of the Company express the hope that Alfred E. Lyon will continue to give the Company the benefit of the very valuable services which he has rendered it during the past 19 years and that, while recognizing that no Director can commit his successor, the present Directors express their hope that Mr. Lyon will continue in active •service after January 4, 1951." H E 22

P $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 In accordance with this request of the Board, Mr. Lyon has continued as chief executive officer. The cooperative spirit of every team member, stockholder and employee alike, has helped management materially. The pride each employee takes in his association with Philip Morris motivates all to bend every effort to maintain the quality on which is based the full acceptance of our products shown by the American people and the world consumer. conclusion The uncertainties that lie ahead of business and of all free people in the world today seem more acute than at any time. Measures taken by Government to meet external threats to peace have of necessity added to the problems of individuals and of the companies and businesses by which they live. The number of factors affecting business beyond the control of management has again increased. However, in continuing our plans for the future, we are hopeful that the results of the coming year will again provide increased benefit to stockholders, employees, the United States Treasury, and all others who have an interest in our operating revenue. I jx~, wrCbWI4 . President 1/ .1 / Chairman of the Board N+ 0 May 21, 1951 1- . ~}., o.~

audited financial statements Auditors' Certificate CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors of Philip Morris & Co. Ltd., Incorporated: We have examined the balance sheet of PHILIP XIORRIS & CO. LTD., INCORPO- RATED as of March 31, 1951, and the related statements of earnings and surplus for the fiscal }•ear then ended. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. We made a similar examination for the fiscal year ended March 31, 1950. In our opinion, the accompanying balance sheet and related statements of earnings and surplus present fairly the financial position of Philip Morris & Co. Ltd., Incorporated at March 31, 1951 and 1950 and the results of its operations for the fiscal years then ended,, in conformity with generally accepted accounting principles applied on a consistent basis. New York, April 19, 1951. ~~4- - ~o 49W ~ I E I 24

j1:t1ld3 `i.*r?"t< k~, i t+. ;. statements of earnings for the fiscal years enrler[ M1larch 31, 1951 ttnd 1950 net sales $305,804,331 $255,752,488 Cost of goods sold .......................... ........ ........ 245,937,345 208,985,530 Cost of shipping goods, selling, advertising and gen eral admi nistration 22,496,784 19,470,228 268,434,129 228,455,758 Operating income .................. ........ ........ 37,370,202 27,296,730 P Non-operating income ........................ ........ ........ ' 99,041 172,691 37,469,243 27,469,421 Interest on debentures. . ........................ ........ ........ 840,000 840,000 Other interest charges . .................... ........ ........ 1,107,878 827,913 Provision under incentive bonus plan ............ ........ ........ 311,424 550,301 Prior service contribution under company's retiremen t plan ... ........ 115,899 79,424 ~ Miscellaneous charges ........................ ........ ........ i 6,897 I 4,599 2,382,098 , 2,302,237 35,087,145 , 25,167,184 Provision for federal and state taxes on income (inc luding $2 ,686,000 for federal excess profits tax in 1951). ....... ........ ........ 18,398,000 9,864,000 Net earnings ...................... ........ ........ $ 16,689,145 $ 15,303,184 1 N 4 .L~ . tia The accompanying notes are an integral part of the financiai statements, C7 .+« [Y' V bj W t5

n . ..y . . ., - ^r. ..a .. .. .. -1 s' a , ~ . -d balance sheet assets curren t : :Narrh 31, 1951 nnrl 1950 Demand deposits in banks and cash on hand . $ 9,114,805 Accounts receivable from customers, less allowance for discounts and doubtful accounts, 1951 : $776,2 76; 1950: $765,681 ........... : 11,475,934 Accounts receivable from others .... ............................. i 459,318 Inventories, at average cost: Leaf tobacco (including imported I leaf in bond subject to duty). ... 200,151,303 Manufactured stock .......... .............. ........••.... ~ 14,700,875 { Stock in process, revenue stamps and operating supplies. .. .... f 5,986,879 ~ Total inventories ...... ............................. ~ 220,839,057 Total current assets .... ............................. ' 241,889,114 property, plant and eqnipment: Land, buildings, machinery and equi pment, at cost ................. ~ 15,493,671 Less, Allowance for depreciation I ............................. 5,134,137 1 10,359,534 other assets: Investment, at cost, in Philip Morris & Co. Ltd. (England) (Note 1). .... 235,965 Prepaid expenses and deferred char ges .......................... 1,101,385 1,337,350 ~ $253,585,998 S 8,651,921 10,427,690 382,314 145,362,079 10,265,517 3,983,250 159,610,846 179,072,771 13,691,005 4,719,987 8,971,018 $189,095,063 ~ . 01 %-J ki laA The accompanying notes are af 16

i N .ar wsY a 1° ~z a A 7 Z D u liabilities curren t : Notes payable to banks ....................................... Cash dividends declared ....................................... Accounts payable ............................................ Accrued liabilities, interest, iaxes (other than federal income taxes), incentive bonus, advertising, etc ............................. Provision for federal taxes on income ........................... Total current liabilities ............................... I ff unded debt: 251s% Sinking Fund Debentures, maturing April 1, 1966 (sinking fund payments commence March 31, 1956) ....................... capital $ 75,000,000 2,060,610 3,020,117 3,605,821 17,760,304 101,446,852 32,000,000 s $55,500,000 3,187,353 1,869,912 3,401,999 9,414,898 73,374,162 32,000,000 stockholders' investment, represented by (note 2): Cumulative preferred stock, par value $100 per share: 4% Series ............................................... 18,985,200 ~ 19,185,100 3.90 % Series ............................................ 13,061,000 { Common stock, par value $5 per share ........................... 12,240,605 ; 9,992,335 surplus: Paid in by stockholders (in excess of par value of capital stocks, less financing expenses) ...........................••.••...•••• 33,304,643 14,288,392 Earnings reinvested or retained in the business (Note 3) ............. 43,083,797 40,471,181 120;675,245 83,937,008 Cost of preferred stock held in treasury ................... Less 536,099 216,107 , ~ s 120,139,146 83,720,901 0 $253,585,998 $189,095,063 -p, m ~ 3 ... ~.t !V c,~t integral part of the financial statements. 27

.:3 irze`crrFt~~rtae•i1 ert Y er.-rr.tu statements of surplus f or the fiscal years ended March 31, 1951 aand 1950 paid in by stockholders (in excess of par value of capital stocks, less financing expenses): Balance at beginning of year ................................... Excess of proceeds over par value on sales of 333,077 shares of com- mon stock and 130,610 shares of cumulative preferred stock, 3.90% Series, less financing expenses ....................... Excess of approximate market value over par value of common stock to be issued as a stock dividend ........................... Excess of par value over cost of cumulative preferred stock redeemed during year, 19,151 shares of 3.60% Series in 1950 and 1,999 shares of 4% Series in each year ........................... Balance at end of year ............................. earnings reinvested or retained in the bnsiness: Balance at beginning of year ................................... Net earnings for year ......................................... Transfer of balance of reserve for contingencies .................. Deduct, Dividends declared: On cumulative preferred stock: 4% Series ..................................... 3.90% Series .................................. ; 3.60 % Series .................................. On common stock: In cash ........................................ ~ In common stock, 116,577 shares .................. ~ iii Balance at end of year (Note 3) ....................... The accomgranyinD notes are an integral part of the financial statements. $14,288,392 $14,277,516 13,766,521 5,245,965 3,765 10,876 $33,304,643 $14,288,392 $40,471,181 $31,715,654 16,689,145 15,303,184 237,000 57,160,326 47,255,838 750,710 758,908 502 337 ~ , ; ~ 30,348 ~ t ~ 6,994,632 5,995,401 5,828,850 ~ 14,076,529 6,784,657 { $43, 83,797 $40,471,181 I 28

1 Audited statements of the English subsidiary translated at official rates of exchange showed net assets of $334,701 at March 31, 1950 and net income of $35,776 for the fiscal year then ended. Corresponding information as of March 31, 1951 and for the fiscal year then ended is not presently available. No dividends were received from the subsidiary during the period. 2 Information concerning capital shares: Authorized: Preferred, 350,000 shares (all of which have been originally issued) Common, 3,000,000 shares Outstanding (including treasury stock) : Preferred: 4% Series 3.90% Series Common (1951 includes 116,577 shares to be issued after March 31, 1951 as a stock dividend) In treasury (preferred) : 4% Series 3.90% Series 1951 1950 189,852 191,851 130,610 None 2,448,121 1,998,467 2,698 2,199 2,612 None The company is required to set aside annu- ally, in sinking funds, amounts sufficient to redeem 1% of the maximum number of preferred shares that have been issued. The redemption prices are $105.50 per share for the 4% Series and $100.75 per share for the 3.90% Series. The company holds a sufficient number of shares of preferred stock in treasury for use in lieu of sinking fund payments aggregating $342,475 to be made within one year from March 31,1951. The cumulative preferred stock is redeem- able at any time, otherwise than through the sinking funds, at $107.50 per share for 4% Series to February 1, 1953 and $103.75 per share for 3.90% Series to May 1, 1954, and at diminishing per share amounts after those dates but not less than $105.50 for 4% Series and $100.75 for 3.90% Series; plus accrued dividends in each case. Holders of the shares of each series are entitled to such specified payments upon voluntary liquidation of the company and to $100.00 per share, plus ac- crued dividends, upon involuntary liquida- tion. 3 The terms of issue of the 25/g% Sinking Fund Debentures include certain restric- tions with respect to the declaration or payment of dividends (other than divi- dends payable in stock of the company) on any shares of common stock of the com- pany, and to payments on account of the purchase, redemption or other retirement of its capital shares. At March 31, 1951, approximately $26,641,000 of the earnings retained was free of such restrictions. The terms of issue of the cumulative pre- ferred stock include eertain 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 earnings retained free of such restrictions was in excess of the $26,641,000 mentioned above. Provision for depreciation of plant and equipment charged to costs and expenses aggregated $909,381 for the fiscal year 1951 and $900,598 for the fiscal year 1950.

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products o f the Philip Morris Company Philip Morris quality, a standard feature of all our products, is the result of carefully developed tobacco know-how which is backed by a hundred years of experience. We start with the finest tobaccos grown, domestic as well as imported. Next comes aging-without proper aging of tobaccos, no cigarette can reach perfection. '1'hen the art of the master blender is applied. All our experience is preserved in carefully guarded secret formulas which bring out the flavor and aroma of these fine tobaccos. Also of great importance in producing the standard of excellence reached by Philip Morris is ultra-modern machinery for making and packing cigarettes. Popular-priced Philip Morris cigarettes have become our principal product. Growing sales volume demonstrates the su- periority of our brand for day-in and day-out smoking pleasure. It wears well. Spuds are a blend of high-quality domestic and imported tobaccos, evenly mentholated. They are manufactured in two styles-cork tipped and plain ends. Marlboro cigarettes are spiced by the rich aroma of selected oriental leaf. They are blended for extreme mildness and are produced in three styles-Ivory Tipped and plain ends for ap- peal to all discriminating smokers and Beauty Tipped (red) created especially for the ladies. Other cigarettes we produce which have a definite appeal to a select market are Dunhill, king size; English Ovals, since 1918 a blend of the best quality Turkish and domestic tobaccos, a luxury product packed in crush-proof boxes and sold in the premium price class; and Player's Navy Cut "Medium" cig- arettes, blended principally of select bright Virginia tobacco and packed in sliding sleeve-like crush-proof boxes. They sell in the premium class. Bond Street, an aromatic blend of selected tobaccos compa- rable in every way to the most expensive mixtures, is our largest selling item for the pipe smoker. Revelation is a particularly mild blend of five of the world's finest quality tobaccos, skillfully combined. This tobacco is de- signed to appeal to the most discriminating pipe smoker. Country Doctor, Handsome Dan, Barking Dog and Wakefield Mixture are pipe mixtures, each varying slightly, to appeal to the special taste of a wide range of smokers. Lyon's Own is a very superior mixture in the premium price class. - I I

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