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

ADVERTISING Competition is keen in our industry. We have met the challenge of tremendous adver- tising power with a program developed after careful research and market analysis. Our advertising plans are concentrated on two important phases-the development of pro- ductive selling messages and techniques and the studied selection of media to be used on the most efficient basis. The advertising agencies which have serviced our Company in the past, have again in fiscal 1949 worked closely with the sales and advertising departments in the planning and carrying out of the advertising programs for our various products. In order to reach the greatest possible audience in the most efficient and productive way we use both nighttime and daytime radio programs. Entertainment value is of first im- portance in attracting audiences to hear our selling messages. At the same time, however, programs are planned to afford various op- portunities for the public. This gives an element of service to programs presented from coast to coast. We believe this is of value not only because it creates wide community interest but also because it helps build good will and pres- tige for our Company. We have used spot Television advertising for approximately one year and recently pre- sented a full time Television show. We believe that Television will develop into an important selling medium and are continuing our study to develop a full knowledge of its potentials. Johnny, our living trademark, is particularly well adapted to Television presentation. As in the past we spent more in propor- tion to our sales than some companies and we believe that "our investment in advertising is accelerating our long term growth. I I

TELEVISION. Jinx Falkenberg Demonstrates Philip Morris' Quality

® 0 ck~ i7lJJ7lll D 0 0 ® ® u INDIANA KENTUCKY TENNESSEE Q r 0 FLORIDA W EST V IRGINI M r NORTH CAROLINA ~ MISSISSIPPI ALABAMA GEORGIA SOUTH CAROLINA IIB s VIRGINIA . i BAL mond EW YORK ~ NI~/ JERSEY I SOtJRCES OF PHILIP MORRIS DOMESTIC LEAF 12 nFE FLUE CURED ~.,. mes . 11B CLASSIFICATION GEORGIA SOUTH CAROLINA EASTERN CAROLINA MIDDLE BELT OLD BELT TYFE CLASSIFICATION CLARKSVILLE PADUCAH HENDERSON DARC VIRGINIA OHIO TYFE AIR CURED MARYLAND BURLEY GREEN RIVER ONE SUCKER SUN CURED PERIQUE

I LEAF Our inventories of leaf tobacco are the largest in our history. Prior to the end of our 1948 fiscal year it became clear that our sales would demand increased quantities of leaf, both domestic and imported. Before the open- ing of the markets in 1948 substantial amounts of aged domestic leaf were purchased and placed in our warehouses for further aging. These stocks of leaf were increased by the extra amounts of high quality tobacco bought during the market seasons and placed in storage. Our supplies of choicest Oriental tobaccos are at our highest level. Our 1950 requirements can be met even at an increased level of sales. The staff of our Domestic Leaf Depart- ment under Mr. Wirt H. Hatcher, was strength- ened during the year through the addition of Mr. Edwin W. Tucker. Mr. Tucker is now gen- eral assistant to Mr. Hatcher. Mr. J. Raymond Kuhn continues the direct supervision of leaf stocks. The Oriental Leaf Department under Messrs. J. E. Archbell and Russell H. Kuhn has been fortified by the recruiting of Mr. John H. Lane. Mr. Tucker and Mr. Lane have long been considered in the industry as outstanding experts in their respective fields. Government controls reduc- ed the crop acreage and raised the support price. Because of these factors which artificially affect the price and limit the supply, no ma- terial reduction in the price of domestic leaf tobacco seems likely in the near future. Left: Mr. Edwin W. Tucker was born and grew up in the tobacco country in Virginia. Work in tobacco from growing fields to auction floors has been his career. In November of last year he resigned his post as Assistant Vice President of Universal Leaf Tobacco Company to join the Domestic Leaf Department of Philip Morris. Right: John H. Lane was born in Turkey of American parents and has maintained his contact with Oriental tobacco throughout his business life. For years he work- ed in a tobacco company in the Orient in both tech- nical and administrative positions. Last September he joined the Oriental Leaf Department of Philip Morris.

MANUFACTURING The cumulative effect of efficiency gained through our expanded program is in force to- day and in our plants we are turning out more cigarettes than ever before. The manufacturing division under Mr. C. T. Ames, Jr., Vice Presi- dent, profited materially during the year by the improved machines and methods described in greater detail in our last two reports. Additional improvements in equipment and production facilities were made during the year. As an example, in the stemming department thirty- four new machines now do the work formerly requiring fifty. Our net investment in land, machinery and buildings with over one mil- lion feet of floor space in use, now stands at $8,301,257. (continued on page 19) 14-

I f .~ C ~ t O ~ n. . : E ~ 0 u O ~n L L O In i a d 0 ~ O ~ O .. E C a C Q. = ~ v O ~ C) Q ~ ~ -p 0 C 0 s a O E G. ~ u 0 a ~- i O d C ~ O a u Q O ~ C N 0 C -C ~

RECORD OF PHILIP MORRIS OPERATIONS Balance Sheets at March 31, (000's omitted) 1949 1948 1947 1946 1945 1944 .ASSETS , Cash & Marketable Securities ~ 5,264 ~ 4,857 $ 4,024 ~ 2,486 " $ 2,320 S 2,455 $ Receivables 9,173 7,196 6,391 7,914 10,063 11,017 tnventories 132,444 93,913 98,812 112,745 87,280 69,948 Other Current Assets - - - 1,867 206 4,290 Total Current Assets 146,881 105,966 109,227 125,012 99,869 87,710 Net Property Account 8,301 6,828 6,468 4,989 5,110 3,471 Prepaid Items & Other Assets 1,117 937 1,049 1,391 ' 1,929 3,304 Total Assets 156,299 113,731 116,744 131,392 106,908 94,485 LIABILITIES Notes Payable 30,000 - 5,500 44,000 16,000 5,000 Federal Taxes 7,811 3,431 3,440 ` 2,681 6,992 6,028 Accounts Payable 6,773 5,753 3,866 2,574 5,047 6,552 Other Current Liabilities 2,987 1,797 1,834 1,369 2,255 2,045 Total Current Liabilities 47,571 10,981 14,640 50,624 30,294 19,625 Long Term Debt 32,000 32,000 32,000 11,500 11,300 11,500 Reserves for Contingencies, etc. 237 237 500 - 250 - Net Worth 76,491 70,513 69,604 69,268 65,064 63,360 Total Liabilities and Capital 156,299 113,731 116,744 131,392 106,908 94,485 Net Working Capital 99,310 94,985 94,587 74,388 69,575 68,085 Net Asset Value of Common Stock 28.04 24.80 23.95 23.68 *22.56 -*21.94 I 3 1939 1936 l 1,501 $ 2,393 ) 3,70.5 1,665 27,295 8,231 - 32,501 12,289 2,885 1,250 1,757 122 37,143 13,661 7,000 3,800. a 1,426 395 877 1,149 1,206 591 10,509 5,935 - - - - 26,634 7,726 37,143 13,661 21,992 6,354 * 14.01 *6.20 *-adjusted to present capitalization Figures for the year 1939 are on a consolidated basis (with English subsidiary). Figures for the year 1936 are on a consolidated basis (with American subsidiary).

RECORD OF PHILIP MORRIS OPERATIONS Statements of Income for the fiscal years ended March 31, (000 omitted) 1949 1948 1947 1946 1945 1944 1939 1936 Net Sales (Including Revenue Stamps) $228,372 $171,258 $170,906 $178,686 $185,299 $177,901 $64,595 $26,876 Cost of Sales (Including `Revenue Stamps) 188,656 146,694 148,412 159,799 159,051 152,290 48,205 20,171 Gross Operating Profit 39,716 24,564 22,494 18,887 26,248 25,611 16,390 6,705 Shipping, Selling, General - & Administrative Exp. 17,499 14,641 12,752 10,953 12,080 12,507 7;862 3,498 Operating Profit 22,217 9,923 9,742 7,934 14,168 13,104 8,528 3,207 Other Income 101 7251 6832 2,3234 267 149 108 16 Total Income 22,318 10,648 10,425 10,257 14,435 13,253 8,636 3,223 Income Deductions 1,658 985 2,1743 1,4765 9407 672 551 421 Net Income (Before Taxes) 20,660 9,663 8,251 8,781 13,495 12,581 8,085 2,802 Federal and State Taxes on Income 8,162 3,628 3,293 2,633 6,692 5,930 1,534 394 Net Income 12,498 6,035 4,958 6,148 6,803 6,651 6,551 2,408 Total Dividend Payments declared Cash (Common) 5,246 3,497 3,498 2,998 4,497 4,496 3,7278 415 (pfd.) 818 836 863 817 866 844 277 - I Net Income Retained in the Business 9 6,434 1,702 597 2,333 1,440 1,311 2,547 1,993 Earned per common share adjusted to present common shares outstanding 5.84 2.60 2.05 2.67 2.97 2.91 3.67 1.93 Per share earned on common shares outstanding 5.84 2.60 2.05 2.676 5.94 5.82 7.34 5.80 Common Shares 1,998,467 1,998,467 1,998,468 1,998,470 999,235 999,235 855,1951/2 415,465 (1) Including profit of $546,889.78 on sales of securities (before federal income tax of $137,000.00). (2) Including recovery of $310,000.00 in connection with government contracts, net premium of $133,865.00 received in sale of 2%°fo Debentures, and profit of $77,200.00 on sale of real estate. (3) Including premium of $472,000.00 paid on retirement of 3% Debentures, and provision of $500,000.00 for claims, litigation and contingencies. (4) Including claim in amount of $1,867,527.76 for refund of federal excess profits taxes of prior years, arising under the carry-back provisions of the Internal Revenue Code, and excess provision of ;300,000.00 in prior years for federal'income taxes. _.... -(5) Including charge of $492,221.95 for losses arising from termination of war, less amount thereof charged against provision of $250,000.00 for post-war and other contingencies. (See Note 7). Also including charge of $275,000.00 for reimbursement of withdrawing subscribers in the purchase of subscription rights to shares of Cumulative Preferred Stock, 3.60% series. (6) After stock split 2 for 1. (7) - - • • _, v. . .; .ncies. 000 -. nc ud~ng provnston of ~250,.00 for post-war snd otlier continge - - „_ _-~ -r- ,.- - - (8) Disregarding a stock dividend of one-half shar of Comm on Stock fo'r each share of Common . Stock. Earned surplus charged $2,597,950.00 for shares of Common Stock issued with respect to thisdtvidend. _ -:_ .---

A COMPARISON 0 f 0 t; The fiscal year of Philip Morris & Co. Ltd., Inc. ends March 3' 1948 1947 1 NET SALES (including Revenue Stamps) Philip Morris Company $228,372,000 4 Competing Companies $2,286,066,000 Philip Morris Company $171,258,000 4 Competing Companies $2,169,816,000 Philip Morris Company $170,906,000 NET SALES (including Revenue Stamps) per $1,000,000 of net property 27,510,000 22,536,000 25,081,000 27,523,000 26,423,000 ANALYSIS OF OPERATIONS Net Sales (Excluding Revenue Stamps) 100.00% 100.00% 100.00% 100.00% 100.00% Cost of Sales (Excluding Revenue Stamps) 65.62 74.52 71.13 76.83 73.70 Gross Operating Profit 34.38 25.48 28.87 23.17 26.30 Shipping, Selling, General & Adminitrative Expense 15.15 7.25 17.21 6.81 14.95 Net Operating Profit 19.23 18.23 11.66 16.36 11.35 Other Income .09 .13 .85 .29 .80 Total Income 19.32 18.36 12.51 16.65 12.15 Income Deductions 1.44 1.96 1.16 1.83 . 2.5 Net Income before Taxes 17.88 16.40 11.35 14.82 9. I Federal and State Taxes on Income 7.06 6.62 4.26 6.07 3. Net Income as % of Net Sales (Excluding Revenue Stamps) 10.82 9.78 7.09 8.75 5.78 Net Income as % of Net Worth 18.63 13.55 8.56 13.28 7.12 Earnings per share of Common Stock 5.84 2.60 2.04 CAPITAL STRUCTURE % Long term debt 29.50 39.13 31.22 35.18 31.49 0/6 Preferred Stock 18.85 11.52 20.43 11.22 21.40 % Common Stock and Surplus 51.65 49:35 48.35 53.60 47.11 ANALYSIS OF FiNANCIAL POSITION Net Prop. Acct. as 9'0 of tang. net worth 10.85 12.96 9.68 11.09 9.29 Current Liabil. as % of tang. net worth 62.19 46.10 15.57 54.06 21.03 Total Liabilities as % of tang. net worth 104.34 115.23 61.29 112.75 67.73 Inventories as % of net working capital . 133.36 118.79 98.87 124.55 104.47 Current Liabilities as % of inventories 35.92 25.48 11.69 30.19 • 14.82 Long Term Debt as % of networking capital 32:22 45.13 33.69 40.61 --- 33.83 (1) After exchange of 2 shares of $5 par value for each share of $10 p~ ~ .R ~ C3 ca . -ta 0o I

1E MORRIS OPERATIONS WITH THE AGGREGATE FIGURES OF ITS FOUR rhe figures of the four major competitors are on a calendar year basis. For example, the 1948 comparison is between the March 31, 1949 fiscal year 16 1945 1944 1943 1942 4 Competing Philip Morris 4 Competing Philip Morris 4 Competing Philip Morris 4 Competing Philip Morris 4 Competing Companies Company Companies Company Companies Company Companies Company Companies $1,965,829,000 $178,686,000 $1,514,167,000 $185,299,000 $1,419,195,000 $177,901,000 $1,408,276,000 $141,047,000 $1,206,242,000 33,908,000 35,815,000 32,771,000 36,262,000 29,542,000 51,253,000 27,199,000 37,885,000 21,375,000 100.00% 100.00qo 100.00%. 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%, 77.73 77.43 78.76 72.52 75.09 68.54 68.16 58.65 62.15 22.27 22.57 21.24 ' 27.48 24.91 31.46 31.84 41.35 37.85 6.18 13.09 5.77 12.65 7.86 15.36 10.46 18.77 12.54 16.09 9.48 15.47 14.83 17.05 16.10 21.38 22.58 25.31 .23 2.78 .35 .28 .30 .18 .32 .28 .45 16.32 12.26 15.82 15.11 17.35 16.28 21.70 22.86 25.76 1.80 1.7b 1.94 .98 1.44 83 1.40 78 1.58 ~ 4.52 10.50 13.88 14.13 15.91 15.45 20.30 22.08 24.18 5.92 3.15 6.22 7.00 8.23 7.28 11.37 11.61 13.46 8.60 7.35 7.66 7.13 7.68 8.17 8.93 10.47 10.72 11.68 8.88 8.82 10.45 9.34 10.50 10.15 11.13 10.72 2.671 5.94 5.82 6.10 36.57 14.24 28.97 14.79 28.21 15.36 20.89 15.82 20.24 12.30 27.16 14.36 26.17 9.99 26.07 11.11 26.66 11.53 51.13 58.60 56.67 59.04 61.80 58.57 68.00 57.52 68.23 9.22 7.21 7.69 7.86 8.81 5.48 9.60 5.98 10.80 48.10 73.14 45.26 46.60 42.86 31.00 36.99 24.30 33.57 111.08 89.75 - 90.13 64.36 86.58 _, 49.16 66.48 43.11 61.89 119.14 151.56 118.25 ._..125.45 107.84 - s.102.74 112.48 105.41 112.49 27.07 44.90 28.94 34.71 31.26 28.06 29.33 21.42 27.07 41.99 15.46 33.61 - 16.24 33.98 16.89 25.91 -17.48 25.40 es,,

,UR MAJOR COMPETITORS A year of Philip Morris and the 1948 calendar year for the other companies. 1941 1940 1939 'ing ies Philip Morris - Company 4 Competing Companies Philip Morris Company 4 Competing Companies Philip Morris Company 4 Competing Companies Philip Morris Company 2,000 $112,565,000 $1,045,506,000 $87,352,000 $902,967,000 $73,344,000 $851,838,000 $26,876,000 5,000 30,186,000 17,459,000 28,187,000 15,815,000 26,354,000 14,925,000 21,502,000 0% 100.00'/, 100.00% y 100.00% 100.00'/, 100.00% 100.00% 100.00% 5 50.97 59.77 51.61 59.71 52.55 60.65 48.58 5 49.03 40.23 . 48.39 40.29 47.45 39.35 51.42 f 21.02 15.19 22.46 15.92 20.22 16.60 26.83 1 - 28.01 25.04 25.93 24.37 27.23 22.75 24.59 5 .57 -. .40 .42 .37 _ .63 .12 h ,- 28.38 25.61 .- 26.33 24.79 27.60 23.38 __ 24J1 3 :='.86 1.58 1.46 1.56 1.90 1.54 3.23 r. ~. 3 ~~ ~ 27.52 24.03 24.87 23.23 25J0 21.84 21.48 5 ~ ^t= ~a2.48 10.77 6.80 6.59 4.79 4.32 3.01 2 f * 15.04 13.26 18.07 16.64 20.91 17.52 18.47 2 15.77 12.00 15J6 13.70 25.13 13.75 31.17 # ~ 9.88 10.46 11.18 3 30.17 13.37 31.91 13.28 2.86 13.37 3 69.83 76.75 ~~-, 68.04 76.26 j7,14 75.45 0 7.56 11.79 ~_ 6.64 11.24 ,~ ;.~ 9.42 11.42 7 ~~~ 89.39 , 33.09 ~ b,,19_ 15.57 ~ 42.86 12.08 48.41 ~7.19 32.24 30.59 ~ ~ - F: 9 ~- ---- - ~123.23 - ~, 114.55 ~ ~83.93 . - ;4 96.66 24.40 ~, 95.77 7 ~36.57 16.82 ~ ~ ~.~39 52~ ~ 12.93 5. 24 ~ ~ :16.79 1840 ~~ ^~- ~ ~~ s ~ ~. ~ R ~ ~° _ t , .' ~ . ~~~..~.~ ~ ~ .e~. -F. t~~ ~'~~r .. 10.38 ~~ 77.33 5.41 ~. _. .i .i7.96 7. 96 ts ..-- ., . ~78.36 12.93 z 9.80 13.50 ~ 100.00 76.70 1933 4 Competing Companies $751,791,000 14,396,000 100.00% ~ 0 I

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El® ~ This device tests1he moisture c_ontentt o~~ acco eve two mmutes MoWure s very ctosefy coritrottec~. t . ach of these packaging mac mes ses~ av r ~5~CH30 ~# „~ Gartons of cigarettes a cfay fo the shi~ap~ng'i oom . A 4A «i~S'SS. .. ~. ach of_ t ese new cig#tret'te .tnak'ing mdchmes makes ©Od cigarettes iari hour. : ~ 4~ ~i~yY m ~ 0 r# Earnings set aside to provide for replace- ment of equipment and installation of more efficient machines and methods as they become available now total $4,031,712. The broadening scope of our manufactur- ing division has been accompanied by devel- opment of trained personnel and now Messrs A. C. Britton, C. P. Jones, Spencer T. Jones and E. M. Powers assist Messrs. E. W. Dinwid- die, S. T. Grigg and W. N. McFadden in the direct supervision of our plants. We have increased the use of available floor space in our factories and are now pro- ducing in one day quantities formerly requir- ing a day and a half to make in the same buildings. 19

RESEARCH Our Research, Department is continually controls. In this picture, Mr. Willard F. Green- developing and testing scientific means for im- wald, Director of Research, is observing - a proving our products and maintaining proper laboratory test. MANAGEMENT AND BOARD OF DIRECTORS Mr. O. H. Chalkley retired from the of- fice of Chairman of the Board, but continues to be an active member of the Board of Directors. On April 27, 1949, Mr. Alfred E. Lyon was elected Chairman of the Board, and pursuant to changes in the by-laws, will serve as the chief executive officer. Mr. O. Parker McComas, who - _ - -: was formerly the Executive Vice President, has been elected President and will serve as the Company's chief administrative officer. It is with deepest regret that we report the death in January of Mr. Thomas F. Gannon, Vice President and long time ambassador of good will for Philip Morris. He had served ably since he joined Philip Morris in 1925. His help- ful friendliness is missed not only by his asso- ciates within the Company but by his many friends throughout the tobacco business.

FINANCIAL The planning and control of our financial affairs under the direct supervision of Mr. L. G. Hanson, Vice President and Treasurer, have helped to produce smooth operation. Our expanded sales called for additional funds in inventory, in production facilities and in equipment.= $33,943,011 was used to in- crease leaf inventories and $4,263,956 to en- large our stock of manufactured cigarettes. We undertook new expansion of production capa- city in our present buildings. During the year $2,412,053 was spent and $1,250,000 of addi- tional facilities now on order will be paid for and installed in the next few months. $30,000,- 000 of additional funds were provided through bank loans, $6,434,372 from earnings and $742,042 from charges made for depreciation. Net earnings were $12,498,058 after pro- viding $8,162,000 for Federal and State taxes on income. After provision of $817,680 for preferred stock dividends, total dividends of $5,246,006 were declared on the common stock. The remaining $6,434,372 was used in the business to provide plant improvements and increase working funds. We purchased 1,995 shares of 3.60°Jo and 2,910 shares of 4°Jo preferred stocks dur- ing the year. These shares were bought at prices below par. In addition to the comparative statements of financial condition and income starting on page 24, we have included in the center of this book a series of tabulations covering our finan- cial operations for several years. 1936 was our first fiscal year of operation on a scale com- parable to the present and so, comparative fig- ures not before published for that year are in- cluded in these tables. The table below shows the sources of the money used in our business and the, relationship of our net sales and our net earnings to this total investment. Many People Supply the Large Amounts of Capital Invested in Philip Morris YEARS ENDED MARCH 31 1949 1948 1947 1946 1945 1944 1936 People Loaned Us Capital ...............................$ 62,000 $ 32,000 $ 37,500 (000 OMITTED) $ 55,500 $ 27,300 $16,500 $ 3,800 Preferred Shareholders lnvested ..................... 20,451 20,942 21,739 21,939 19,985 19,520 - Common Shareholders Equity ......................... 56,040 49,569 47,864 47,328 45,078 43,840 7,728 Total Capital Invested .............................$138,491 $102,511 $107,103 $124,767 $ 92,363 $79,860 $11,525 Net Sales ........................:................................$228,372 $171,258 $170,906 $178,686 $185,299 $177,901 $26,876 Total Capital as percent of Sates ..................... 60.64 59.86 62.67 69.82 49.85 44.89 .42.88, Net Earnings as percent of Total Capital......... 9.02 5.87 4.63 4.93 7.37 8.33 20.89

PHILIP MORRIS TEAM There are now 3,554 people in the Philip Morris organization. Over one-third have worked in the Company for more than seven years. In the past year salaries and wages to- taled $10,165,607. Group insurance paid for by the Company is extended to every employee under a contract with the Aetna Life Insurance Company. Hospitalization under the Blue Cross is supplied by the Company without cost to those employees who live in areas covered by it. All others are protected by. a special con- tract paid for by the Company with the John Hancock Mutual Life Insurance Company. Non-profit restaurants and cafeterias are maintained on the Company premises for the convenience of our personnel. Modern dispen- saries in the plants protect the health of our employees and our accident rate is low. The retirement fund which provides in- come for all personnel at retirement is under the trusteeship of J. P. Morgan & Company, Inc. and now totals $2,675,000. The addition of new men and the advance- ment of younger men under the program which we were able to accelerate after the war, brought great benefit to the Company in the 1949 fiscal year. Junior executives from the level of foremen and sales supervisors to the heads of major departments have taken over more responsibility. Mr. McComas, who joined our Company in 1946 as Vice President and Director, brought with him a wide and varied experience in finance which led him to the posi- tion of Vice President of Bankers Trust Com- ,L. : ~._ . ... . , . ,-,_. pany from which he retired in order to join Philip Morris His background coupled with _ his more recent experience in the tobacco indus-- try fits him admirably for his new responsibili- ties and,all operations are coordinated under his supervision. Management together with representa- tives of the unions in our plants maintain the fine spirit which makes our organization ef- fective. Each individual gains an understand- ing of the work of everyone else through a pro- gram of interdepartmental information and all personnel have the opportunity to get a com- plete understanding of the Company's work. Several specific aids to this program are used. Since 1947, for example, we have sent our an- nual report to every member of the organiza- tion at his home. Last year under the supervi- sion of Mr. R. P. Roper, Director of Personnel, we prepared and distributed to every member of the team a book which we named, "The House That You Built". This book states in simple language the benefits and responsibili- ties of every member of the team. Equally important in our team are the stockholders whose investment represented 55% of the money used to carry on our busi- ness last year. They include many educational institutions, trust funds and philanthropic or- ganizations. Three out of every four of our individual stockholders own 100 shares or less of our common stock, and at the time of the study we made of our list of owners last Novem- ber, our record showed that no single person owned more than 6% of the Common. With all of us working together toward a common objective, I feel that our optimistic .,.view of the future is justified. 1fred ~. oC:yon *- ._ CHAIRMAN I

,~..~....~--- ~+..~~ `~~:8~±nt ® & 41 auditors' certificate To the Board of Directors of Philip Morris & Co. Ltd., Incorporated: We have examined the balance sheet of PHILIP MORRIS & CO. LTD., INCORPO- RATED as of March 31, 1949, and the related statements of earnings and surplus for the fiscal year 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, 1948. In our opinion, the accompanying balance sheets and related statements of earnings and surplus present fairly the financial 'position of Philip Morris & Co. Ltd., Incorporated at March 31, 1949 and 1948 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 25, 1949. '. 1C. LYBRAND. ROSS BROS. & MONTGOMERY CERTIFIED PUBLIC ACCOUNTANTS ?_ i '411A~Vu Mv rz~ AUDITED FINANCIAL STATEMENTS

P H I L I P M O R R I S .C~ C O., L T D~ BALANCE SHEETS Assets CURRENT: Leaf tobacco (including imported leaf in bond subject to duty). ... Manufactured stock ...................................... Stock in process, revenue stamps and operating supplies ......... Total inventories ................................... Total current assets ................................. PROPERTY, PLANT AND EQUIPMENT: 'Demand deposits in banks and cash on hand .................... Accounts receivable from customers, less allowance for discounts and doubtful accounts, 1949: $732,538; 1948: $640,857 ............ Accounts receivable from others ............................... Inventories, at average cost: Land, buildings, machinery and equipment, at cost ................ Less, Allowance for depreciation ............................. OTHER ASSETS: Notes receivabte and miscellaneous investments ................... Investment, at cost, in Philip Morris & Co. Ltd. (England) (Note 1). .. .. Prepaid expenses and deferred charges.............. . 1949 1948 $ 5,264,092 $ 4,856,841 8,734,378 6,802,534 438,885 393,148 117,992,814 84,049,803 9,956,827 5,692,871 4,494,234 4,170,805 132,443,875 93,913,479 146,881,230 105,966,002 12,332,969 10,602,497 4,031,712 3,774,184 8,301,257 6,828,313 235,965 235,965 38,050 880,362 662,446 '~ 1.116,327 936,461

C 0 R. p® R A T E D (INCORPORATED-IN VIRGINIA) ~ March 31, 1949 and 1948 Liabilities CURRENT: 1949 1948 Notes payable to banks ...................................... $ 30,000,000 Dividends detlared, payable affer March 31 ..................... 3,200,859 $ 1,456,844 Accounts payable ........................................... 3,572,182 4,296,045 Accrued liabilities, interest, taxes (other than federal income taxes), incentive bonus, advertising, etc ............................. 2,987,452 1,797,385 Provision for federal income taxes .............................. 7,810,793 3,430,972 Total current liabilities .............................. 47,571,286 10,981,246 FUNDED DEBT: 2se% Sinking Fund Debentures, maturing April 1, 1966 (sinking fund payments commence March 31, 1956) ........................ 32,000,000 32,000,000 RESERVE FOR CONTINGENCIES I Capital STOCKHOLDERS' INVESTMENT, REPRESENTED BY: Cumulative preferred stock, par value $100 per share; authorized 350,000 shares issuable in series (Note 2): 4% Series, authorized and originally issued 199,847 shares; out- standing, 1949: 193,850 shares; 1948: 195,849 shares ........ 3.60% Series, authorized 149,883 shares, originally issued 19,543 shares; outstanding, 1949: 19,151 shares; 1948: 19,347 shares. . Common stock, par value $5 per share; authorized 3,000,000 shares; issued 1,998,467 shares (Note 3) ............................ Surplus: Paid in by stockholders (in excess of par value of capital stocks, less financing expenses) ................................... Earnings reinvested or retained in the business (Note 4).......... Less, Cost of cumulative preferred stock held in treasury: 1949 1948 4% Series 2,912 shs. 2,001 shs. 3.60% Series 5,573 shs. 3,774 shs. 237,000 237,000 19,385,000 19,584,900 1,915,100 1,934,700 9,992,335 8,336,335 14,277,516 15,941,480 31,715,654 25,281,282 77,285,605 71,078,697 795,077 566,167 76,490,528 70,512,530 $156,298,814 $113,730,776 r~ ~ .t~ 0 25 ~ ~ . cs ~z

P H I L I P M O Ii. R. I S & C O., L T D STATEMENTS OF EARNINGS for the fiscal years ended March 31, 1949 and 1948 1949_ 1948 NET SALES ~2 28 372 9 Interest on debentures,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, Other interest charges,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, Provision under incentive bonus plan ................................ Prior service contribution under company's retirement plan ............ Miscellaneous charges ..........................................' Costofgoodssold,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, 188,655,871 146,693,591 Cost of shipping goods, selling, advertising and general administration. .. 17,499,145 14,641,285 206,155,016 161,334,876 Operatingincome,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, 22,217,083 9,923,081 Nonoperatingincome,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, 100,816 178,028 22,317,899 10,101,109 , ,0 9 ;~ 171,257,957 840,000 840,000 259,523 22,972 468,818 , 79,424 79,424 10,076 42,325 1,657,841 984,721 20,660,058 9,116,388 Provision for federal and state income taxes ......................... 8,162,000 3,491,000 Income for year before items listed below ..................... 12,498,058 5,625,388 Profit on sale of securities, less $137,000 provision for federal income taxes 409,890 12,498,058 6,035,278 Expenses in termination of litigation on behalf of stock- holders (year ended March 31, 1948); less $161,089 _~_-- __ _~ related saving of federal income taxes. : $263,000 Less, Portion of reserve for contingencies released 263,000 Net earnings ........ . .................. ............. k

PT C 0 R. P 0 RA T E D (INCORPORATED IN VIRGINIA ) STATEMENTS OF SURPLUS for the fiscal years ended March 31, 1949 and 1948 1949 1948 PAID IN BY STOCKHOLDERS (in excess of par value of capital stocks, less financing expenses): Balance at beginning of year ............................... $15,941,480 $15,949,390 Transfer of common stock capital reserved against scrip certificates 5 15,941,48 0 15,949,395 Deduct: Transfer to common stock capital (Note 3) .................. 1,656,00 0 Premium on cumulative preferred stock redeemed during year, 1,999 shares of 4% Series and 196 shares of 3.60% Series 7,96 4 7,915 1,663,96 4 7,915 Balance at end of year ........................... $14,277,51 6 $15,941,480 EARNINGS REINVESTED OR RETAINED IN THE BUSINESS: Balance at beginning of year ............................... $25,281,28 2 $23,579,258 Net earnings for year ..................................... 12,498,05 8 6,035,278 37,779,34 0 29,614,536 Deduct: Dividends declared: On cumulative preferred stock: 4% Series .......................... . . . . . . . . . . 66,48 775,392 3.60% Series .................................. 51,19 8 60,509 On common stock .................................. 5,246,00 6 3,497,353 6,063,68 6 4,333,254 Balance at end of year (Note 4) .................... $31,715,65 4 $25,281,2$2 27

NOTES TO FINANCIAL STATEMENTS 1. Audited statements of the English subsidiary show net assets of $330,013 at March 31, 1948 and net in- come of $64,608 for the fiscal year then ended (on the basis of translation into U. S. currency at appli- cable official rates of exchange). The corresponding information is not available for March 31, 1949 and the fiscal year then ended. 2. The Cumulative Preferred Stock is redeemable at any time, otherwise than through the sinking funds, at $107.50 per share for 4% Series (up to February 1, 1953) and $103.00 per share for 3.60% Series (up to February 1, 1950), and at diminishing per share amounts after those dates but not less than $105.50 for 4% Series and $100.00 for 3.60% Series; plus accrued dividends in each case. Holders of the shares of each series are entitled to payment of such redemption prices, plus accrued dividends, upon voluntary liquidation of the company, and to $100.00 per share, plus accrued dividends, upon involuntary liquidation. The company is required to set aside annually, in sinking funds, amounts sufficient to redeem 1% of the maximum number of shares that have been is- sued 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 sinking fund requirements. The company holds a sufficient number of shares of preferred,stock in treasury for use in lieu of sinking fund payments aggregating $230,495 to be made within one year from March 31, 1949. 3. During the fiscal year ended March 31, 1949 transfer was made from surplus to common stock capital of $1,656,000, representing $3 per share for 552,000 shares.of common stock of $5 par value per share heretofore included in capital stock account at equiv- alent of $2 per share. No additional shares of com- mon stock have been issued. 4. The terms of issue of the 25/g% Sinking Fund Deben- tures include certain restrictions with respect to the declaration or payment of dividends (other than dividends payable in stock of the company) on any shares of capital stock of the company, and to pay- ments on account of the purchase, redemption or other retirement of its capital shares. At March 31, 1949, approximately $11,723,000 of the earned sur- plus was free of such restrictions. The terms of issue of the Cumulative Preferred Stock include certain restrictions with respect to the declar- ation 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 $11,723,000 shown above. Provision for depreciation of plant and equipment charged to costs and expenses aggregated $742,042 for the fiscal year 1949 and $590,519 for the fiscal year 1948. I rJ ~ O ~ m 0 28 t>

hese point-of sale pieces are based on the-,service concept - ~ - - - Philip Morris., , --~-~ .. . .~.e . ~ retailer. They work xh-dealer as they work for 32 which has always, characterized Philip Morris work with Li~ Take along some CAN DY FOR TNE FOLKS a1.e* yW-6 f . PHILIP MORRIS

I I Executive Office Building, Fifth Avenue, New York City I W- I I k a t 9 Smoking Tobacco Factory, Richmond, Va. e ;rlp-ER ',. _ ~II ~ UM M .,; ® rag Richmond, Va. Cigarette Factory, Louisville, Kentucky

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