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PHILIP MORRIS I & CO. LTD., INCORPORATED 119 FIFTH AVENUE • NEW YORK 3, N. Y. Page Summa ry 3 Factory Efficiency 5 Board o f Directors 9 Wareho using and Distribution 9 Researc h 10 Tobacco Leaf 11 Financi al 12 Ten-Ye ar Record 14 Industr y Comparison 16 Sales an d Advertising 18 Export 20 Philip Morris Team 21 t+a 0 Certifie d Statements 26 4~1 Product s 32 csa ~ ~ 0 cr

E, v LYON: President . PARxER McCOHIns. Kxecutive Vzce-President RAY JONES, Vice-President G J. HENN, Vice-President : G. HANSON Vice-President & Treasurer ~ ~.WILLIAmI C. FOLEY, . Vice-President - T. F. GaNNON, Vice-President W: H. HATCHER, Vice-President W. E. LIESSTxnu, Vice President :. T AMES, JR., Vice-President E: W. DINFOIDDIE, Vice-President L. C. METZGER, Secretary H. `R. BLuwI, Assistant Secretary , , , , ; Guaranty Trust Co. of N. Y., 140 Broadway, New York . The National City Bank of New York The Commercial National Bank & Trust Co. of New York Conboy, Hewitt, O'Brien & Boardman, 39 Broadway, N. Y.

I I I $9Ux financial condition is the strongest in our history. Current assets at March 31st were $105,966,002 compared to current liabilities of $10,981,246 giving working capital of $94,984,756. We paid off bank loans of $5,500,000 during the year and cut down our inventory of finished products by over $2.5 million. We increased our inventory of high quality leaf without raising its dollar cost by using extraordinary care, making the most of unusual conditions in the tobacco market. Our domestic sales during the fiscal year ended March 31st totaled $163,- 968,000 compared to $157,557,000 in the preceding year, an increase of $6,411,000. Export sales during the period, in spite of a demand of large proportions for Amer- ican cigarettes in foreign countries, amounted to only $7,290,000, compared to $13,- 348,000 in the 1947 fiscal year, because management deemed it wise to maintain high credit standards for all foreign shipments. Lack of available dollars abroad, alone caused a decrease in our foreign sales. The net effect was to give us total sales in round numbers of $171.2 million compared to $170.9 million in the preceding year. 3

Improved methods of distribution reduced our inventory of finished goods by over 30 per cent and cut down the time between the manufacture of our products and their sale to the consumer. The net amount available for dividends after taxes was $6,035,278 compared to $4,958,150 last year. After payment of preferred dividends totaling $835,901, $2.60 per common share remained compared to $2.04 in fiscal 1947. We completed during the year the improvement in manufacturing facilities be- gun when we bought the Louisville plant in 1944. Since then a total of $2,900,000 has been added to the book value of our properties, $764,056 in the past year. This was large- ly for improvements at our factories in Louisville and Richmond. The equipment is of the best modern design and includes features developed by our own engineers. When the pressure of war production was over, we set about closing the gaps in our organization caused by our rapid growth and our loss of personnel during the war years. We employ expert counsel to help us applyy proven methods of job analysis, aptitude testing, and sales training. During the past yearr we have divided and reclassi- fied responsibilities in the intermediate management posts. The creation of new posts has lightened the burden on several key men and has increased the effectiveness of our planning and administration. In brief, during the twelve months ended March 31, 1948, we have accom- plished the following: strengthened our organization by re-align- ment of jobs and departments and the addi- tion of personnel. completed a three-year program of improve- ment in manufacturing facilities and reached the highest level of operating efficiency. improved our distribution methods, shorten- ing the time of our products in transit from factory to smoker. increased our inventory of high quality leaf without inflation of dollar costs. maintained our financial condition unimpaired by the inflationary influences of the times. A 4

I amply covered out of earnings our regular common dividend of $1.50 a share and a spe- cial dividend of 25 cents. provided for the future financial needs of the business with remaining net profits amounting to 85 cents per share. How these things were accomplished is discussed in more detail under ap- propriate divisions of this report. 11R. C. T. AMES, JR., Vice President in charge of manufacturing, moved his office during the year to the New York headquarters to better coordinate manufactur- ing with distribution and sales. The plants in Richmond are under the direct supervision of Mr. E. W. Dinwiddie and Mr. S. T. Grigg and the plant in Louisville, under Mr. W. N. McFadden. Guardite Installation in Louisvil'.e-Tobacco Z st have proper moisture content for han- ng in the manufacturing process. 10,800 pounds of fine leaf, aged and dry, are re- stored to proper moisture by this machine every 55 minutes. Conveyors under electric eye control move the heavy loads through this process to the stemming floor. 5

High Speed Making Machines Tip Marlboro Cigarettes - A special device puts Beauty Tips on these Marlboro cigarettes at a rate of 1100 cigarettes a minute. While you smoke your after breakfast Marlboro, this machine can completely fill 39 cartons.

The net investment in land, machinery, and buildings with almost a million square feet of floor space in use stands at $6,828,313. The deductions from income made to provide for replacement of equipment as it wears out and as more efficient machines are developed now total $3,774,184. The modernization and expansion pro- gram, begun in 1945, has accomplished major changes which should prove bene,ficial in the future. Today the capacity of our Louisville plant alone is almost equal to that of the entire company in 1941 although the number of machines and the net capital in- vestment is smaller. A complete new air-conditioning system has been installed. The Guardite installation is entirely new and can handle four times as much tobacco in the same time as the older methods. Two new oil burning boilers of the most efficient design have been installed in a new boiler house. Eighty-two making machines of the latest high-speed design do the work of a much larger number used before. New con- veyor belts have been installed and the entire plant from top to bottom is as nearly mechanically perfect as it is possible to make a cigarette factory at the present time. In Richmond, the replacement of twenty-eight making machines by eighteen new ones of the same total capacity typifies the developments there. I The final inspection of the packages of cigarettes is made by this young lady. As she places 10 packages in each carton, the mirror makes it possible for her to see the back and front of the packages at the same time. The batteries of packaging machines on upper floors send a continuous stream of cigarette cartons to this carton selector. It counts the cartons and puts 50 into each shipping con- tainer. 25,000,000 cigarettes per day are packed for shipment by this machine.

New machines have been installed which receive cartons of cigarettes from the packing machinery, count the cartons, pack the correct number in shipping containers and move the containers to the loading platform. Following a plan worked out as we met acute wartime difficulties, new machin- ery was set in place as it became available. The machines removed were of modern design and adequate for plants less streamlined than ours. We were able to cover part of the cost of our plant conversion by selling these machines to other cigarette makers. Standard ma- chinery in our plants has been given extra productive capacity by technical features developed by our own engineers. Improved electronic devices control quality and pre- vent breakdowns and delay. Our factories are modern hygienic production units through which materials flow without delay and at the lowest cost. The shipping containers are carried by a conveyor belt from the carton selector through this machine which automatically seals each shipping case. The man in the picture inspects each shipping case and places a safety label on it as it passes him on the belt. In the background the containers are being carried upstairs to the shipping department of the plant. CI