Tobacco Documents Online

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Philip Morris has more than one hundred and seventeen million dollars invested in fine leaf tobacco stored in warehouses like this. As the years pass, the condition of aging tobacco is regu- larly checked. This bale of one of the finest grades of bright flue-cured tobacco is being examined by the head of our Domestic Leaf Department. The map on page 12 shows locali- ties where Philip Morris' domestic tobacco is grown. I

P H I L I P M O R R I S & C O. L T D., INCORPORATED directors officers OWNED BY 16,123 STOCKHOLDERS - OPERATED BY 3,554 EMPLOYEES EXECUTIVE OFFICES - 119 FIFTH AVENUE, NEW YORK 3, N. Y. J. E. ARCHBELL GEO. P. BRAUBURGER O. H. CHALKLEY WILLIAM C. FOLEY L. G. HANSON ALFRED E. LYON, Chairman O. PARKER MCCOMAS, President L. G. HANSON, Vice-President & Treasurer C. T. AMES, JR., Vice-President E. W. DINWIDDIE, Vice-President WILLIAM C. FOLEY, Vice-President ALFRED E. LYONx O. PARKER MeCOMAS 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 L. C. METZGER, Secretary 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 foreword In this report to our stockholders, our organization and the public, we present a view of the whole period which leads to our present standing in the industry. In order to give perspective we include in tables and charts significant data on our operations from 1933, when we created a new cigarette, to the present. Physical and financial changes have naturally ac- companied our growth but our basic policies have not varied. The report of our year just ended is presented against this background. Highlights of the Year .............:.= Summary ........... .......... ..: .::.....:...:.....: Sales •........... = Distributaon _- - . _ Ezport ... ~ :: 4naaeine~Carid ;~ ~73oard o f Direciors _ v -`~iriunciad ~ ehsrts p~lin Idforris Team ....:.::.":: __ -- ~ -l1se of Sales Sales ._.. :, ~ ; ~" t " ° „.....' >.. . ariufacturin esearch . Index, Production " e _~_ of eii;arett s :, `ex', Cost, Priee " and Cost o Livin g .......... g, ~c r~S~-_°--"'._ . . . .. ..........r ..

• The upward trend of pre-war years was resumed and an increasing rate of sales was re- stored, with each month higher than the same month of the preceding year. • Sales promotion efforts brought more new users to our products in the domestic market than in any previous twelve months period. • We expanded the employees' benefits, paid for by the Company. These include group insurance, hospitalization and retirement income. • The money employed in the business was increased one-third and earnings were doubled. • Earnings distributed to the owners of common stock were 50% more than in the preceding year and the value of what the common stockholders own was increased by one-seventh. • The delivery period from factory to smoker was held at a minimum during the year and inven- tories of manufactured stock are in the smallest quantity consistent with our,sales volume. • Inventories of aged tobacco of Philip Morris quality are the largest in our history and our stocks are ample to take care of future sales at present trend. 4 I __.-:w=~a y_

Computed per Share of Common Stock Previous Years for Comparison Fiscal years 1949 1948 * 1 9 3 6 SALES of .............................:.................................................... $114.27 $ 85.70 $ 21.56 distributing Philip Morris products .................................... 41.51 32.88 6.87 Provided for- Tobacco and other costs of manufacturing and Revenue taxes and income taxes for support of U. S. Government .............................................................. 60.35 44.79 11.42 Income taxes for support of State Governments............ .20 .08 .04 Interest on borrowed money and other financial costs .................................................................................. .59 .49 .10 I Payments to employees and insurance, hospitali- zation, pensions and other benefits ................................ 5.37 4.44 1.20 Payments of dividends to shareholders Preferred ................................................................ .41 .42 None Common ................................................................ 2.62 1.75 .33 Future operation and risk .............................................. 3.22 .85 1.60 • Investment in Philip Morris of .............................................. $ 69.30 $ 51.29 5 6.20 Was supplied by- People who loaned us money .......................................... 31.03 16.01 None Owners of Preferred stock ................................................ 10.23 10.48 None Owners of Common stock ................................................ 28.04 24.80 6.20 ` (adjusted to present capitalization) Total investment used in the operation of Philip Morris was ............................................................ $138,491,000 $102,513,000 $7,726,000 For each job in the Company this amounted to............ 38,968 31,210 4,105 Insurance of Personnel, Pensions, Hospitalization and other benefits provided by Philip Morris............ 560,126 468,017 1,075 5

® --10 -- 20 30 L (MfLL1ONS OF DOLLARS ) A7 $ 0 HOW PHILIP MORRIS USED ITS SALES INCOME Raw Materials and other Manufactuting, Distrihution and Financial Costs \\\ Revenue Stamps Federal and State Taxes on Income

, I SUMMARY I I Sales increases continued throughout our fiscal year at a rate reminiscent of our pre-war growth. The number of our cigarettes sold in the domestic market exceeded by a substantial margin any previous peak in our history. Do- mestic sales value amounted to $221,664,000, an increase of $57,696,000 over the 1948 fis- cal year. Export sales amounted to $6,708,000 giving total sales of $228,372,000, a net in- crease of $57,114,000 over the preceding year. Net earnings were $12,498,058 after all taxes, compared to $6,035,278 for fiscal 1948. The resumption of our pre-war growth in the in- dustry justifies, we believe, our unvarying policy of making high quality products backed by intelligent advertising and sales promotion. We have planned our finances for many years to allow for growth and at the present time our bank loans of $30,000,000 stand at a reasonable relationship to our leaf inventory and our sales volume. Current assets at March 31,1949 totaled $146,881,230, more than three times current liabilities of $47,571,286 and working capital amounted to $99,309,944, an increase of $4,325,188 over the preceding fiscal year. Out of the year's net earnings $6,063,686 was distributed to the stockholders. In March• the regular dividend on the common stock was raised from $1.50 to $2.00 per annum and an extra dividend of $1.00 was paid. $6,434,372 has been retained in the business to help pro- vide for additional company needs. Under the incentive payment plan the net earnings of last year resulted in a fund of $468,818. This was distributed widely with no officer or employee receiving more than 5%. Convinced that we had resumed the above- average upward trend which characterized our early growth, at the end of 1947 and in early 1948 we instructed our Leaf Department to buy extra stocks of old crop tobacco in antici- pation of further increased sales. We now hold the largest stocks in our history of aged tobacco of fine Philip Morris quality. Demands of the war had depleted our manpower and handicapped our plan to expand the management group to keep abreast of our growth. However, with the war's end we further developed our program for broadening our management group through the training and advancement of juniors in the Company and the recruiting and training of other men of proven ability, as reported in 1947. This enlarged team assisted last year's smooth and effective operation. We opened new distribution warehouses during the year to maintain prompt delivery service and our total stocks of manufactured cigarettes were held to the lowest quantity con- sistent with business volume. In following sections of this report we give an account of the ways, means and people that have brought about the year's results. The charts and tables within these pages are in- cluded so that our stockholders may trace with ease the financial developments of our business. 7

SALES Under Mr. Ray Jones, Vice President, the sales organization increased its effectiveness as demonstrated by larger sales. Our sales efforts are bent toward describing the quality which differentiates our products from others. Most valuable in the development of our sales is the friendly relationship existing between our sales personnel and distributors and retailers of tobacco products. Our salesmen are aided by merchandis- ing ideas developed by the promotion division of the Sales Department. They pass along posters, window displays and related material DISTRIBUTION Three new warehouses- were opened to meet the requirements of our growing sales volume and others will be opened soon. Dis- tribution under the guidance of Vice President W. C. Foley is now served by 31 warehouses. SALES OF PHILIP MORRIS PRODUCTS (MILLIONS OF DOLLARS) of eye•catching value to more than a million tobacco retailers all over the country. They are kept posted on the advertising programs and their team work helps to create interest in the local appearances of our radio shows. In July we increased the selling price of our cigarettes by about seven-tenths of a cent a package to take care of increasing costs in labor, tobacco and other raw materials. The relationship between the money we have re- ceived for our products during the years and the cost of tobacco is illustrated by the chart on page 13. These are maintained to facilitate quick delivery and each is periodically sold out to the last package before a new shipment is taken in. This insures that our products reach the re- tail counter factory fresh. I I

ca '. 3..~.A.=.R aJ5 ~ e a -- ...~ ....~~ . y~ . ~ .•~'n-'.'LY?-.~. vpqy; "~PRODUCTiON OF . CIGARETTES" <~ ~ii;Ml ~ ~ C c LENDAR YEARS ~~ : ~ ~ ~?~.~~ . ..-.--- ~(t~ex numbers, 4,~T=1Q0-) ~y M [=g~~~ FTJ:.~ fI8 i3 t~'E:.'['~. 0 e wL7 ~ ~. e ® © a GM 0 ® e © A ~ 0 a 1 0 0 ~ t ~ EXPORT The lack of available dollars abroad again handicapped our efforts to _expand our sales in foreign countries. The foreign demand for our produc•ts is far in excess of the quantit ~ we export. Our export sales were $6,708,000. No major improvement seems likely until arger dollar balances can be obtained by