Tobacco Documents Online

I I I FOREWORD On the following pages you will read the story of an American company. You will follow, chapter by chapter, the story of Philip Morris presented in sales figures, manufacturing methods, advertising techniques and financial reports. But there is an important part of that story that can- not be tabulated in a financial statement. There is a community of interest in the success of Philip Morris that extends beyond the interest of stockholders, beyond the framework of factories, offices or warehouses. The farmer, bringing his tobacco crop to market, is part of that community. The truck driver, the freight handler, the store clerk are part of that community. Col- lege students, beneficiaries of trusts, housewives with small investments - all these multiplied by thousands - are part of that community. In a real sense they all depend on the well being of our Company; they all participate in its success. And so, in presenting this report of our stewardship, we address ourselves to the ever-widening community of interest, moving outward from the circle of our Company to the people of America. We are confident that each reader will find a signifi- cant picture of progress that reflects his own security, his own welfare. -6 CONTENTS . Highlights of the Year .................. 4 Summary ................ . .. .. . ............. .. 7 Sales .............................. ..._.......... 8 Purchasing and Distribuiion.......... .. 9 Leaf ................. ...... ........... _............. 10 Export .............................. ..... -.. -. ...11 Research .............. ......................... 11 Phi(ip Morris Team ..... .-~ rt ......_..12 Board of Directors .......... ............ ....._.... ___14 Manufacturing ................................14 Advertising ................. .nz...:.............. 19 Financial ......... ...............s .. e ......... 22 Products ............................. ,-. .... _..29 CHARTS Use of Sales fncome...... ................ 6 Management and Promotion............... - 8 Index, Production . of Cigarettes ... .......... ..:. :......... . 9 (nventories and Sales .......... _. . - 10 Personnel ........ .......... _-._-...------ .._.....-..... ._.-12 - Length of Service Investment per Job TABLES Highlights ......_ ......... ____ .a.......... 5 =-_ Statistics ........:..: ...........................15 - - 6a(ance Sheet Statistics .--Record of Operations 10-Year Analysis ~-,~ _--- ---- ~ - .~~. - =lnvestment Used ......_._._ 4 ... .:.22. r~z "'-MThis report does not constitute a reprtsento ~ ~ ~..4- ;~ion, prospectus or circular'[,n, res„p` ect of any ~n " ' ' 27` = ~ a .A co cstenk f1r fRftit~+ll nf tlae r'nrnsrnf:n n 'nr..t ir ~ nht fransmitfed in onnection witi s al ~ F <t ny s e _ ~r offer to sell or solicitation ai an offer to..._ _ "a or any negotiation for A:L_`sals iif any ° _iuch stock or security.

I

2 From the growing of tobacco seed until a smoker enjoys a Philip Morris, many business processes occur. We received for our part $255,752,488 last year. Out of this we paid $134,910,203 to Government for revenue stamps and income taxes. From the remainder we made pay- ments to people in all walks of life f~or their contribution to the stream of commerce high spotted in these pictures. 1. From flowering plant comes seed. 2. Tobacco goes into the drying shed on the farm. 3. Farmers mingle with tobacco buyers on the auction floor. 4. Two Kentucky girls inspect a stream ol tobacco strips in our Louisville factory. 5. He is packaging cigarettes which flow through the hopper at 2400 per minute. 6. She makes the final package inspec- tion as she places 10 packs in a carton. 7. Shipping cases on their way to truck and freight car. 8. Philip Morris cigarettes are delivered to an independent distributor.

/ Cigarette sales of the Company advanced during the period. ' We were able to reduce certain of those costs which are within our control, partly offsetting higher prices of many things which we must buy. / Our leaf inventories are at a new peak in line with the sales trend. ~ Earnings on the total capital used in the business, including bank loans, were at the rate of 8.94%-appreciably better than the average for the industry. e The average earnings of Company employees were the highest in our history. 0 Total dividend payments to the common stockholders were higher than ever before. ~ The value of what the common stockholders own was increased by 15.56 °/, . / We simplified our capital structure and prepared to seek added permanent capital.

Computed per Share of Common Stock Previous Years for Comparison Fiscalyears 1950 1949 *1936 I SALES of . ....... ................................................................ $127.97 $1 14.27 $ 21.56 Provided for- Tobacco and other costs of manufacturing and distributing Philip Morris products ..... ....................... 46.27 41.51 6.87 Revenue taxes and income taxes for support of U. S. Government . ._,,,, 67.27 60.35 11.42 Income taxes for support of State Governments....,,..,, .23 .20 .04 Interest on borrowed money and other financial costs .................. ........... ._......... ......... ____ ..._............ , -.79 .59 .10 Payments to employees and insurance, hospi- talization, pensions and other benefits ........... ........ ...- 5.76 5.37 1.20 Payments of dividends to shareholders Preferred ............. ....... ----......... ------------ . ... .39 .41 None Common .. ...... ....... ....... ......... ........... ....._,.-........ 3.00 2.62 .33 Future operation and risk .... .... ........................ 4.26 3.22 1.60 I Investment in Philip Morris of....... ........ ............................ $ 85.67 $ 69.30 $ 6.20 Was supplied by- People who loaned us money .......... ........_...... ............. 43.78 31.03 None Owners of Preferred stock ..... ............................ 9.49 10.23 None Owners of Common stock ......... ...._............. ............... 32.40 28.04 6.20 *(adjusted to present capitalization) Total investment used in the operation of Philip Morris was ............ ......... .................................. . $171,221,000 $138,491,000 $7,726,000 For each job in the Company this amounted to . ... 50,065 38,968 4,105 ~ Insurance of Personnel, Pensions, Hospitalization o and other benefits provided by Philip Morris.......... 692,418 560,126 1,075 e~o C? ha CT ua

S tSVozL}'V Y V+.r

SUMMARY I Our unit sales of cigarettes increased ap- proximately 10% during the period covered by this report when cigarette production of the industry as a whole, influenced by a general decline in exports, was little changed. Total sales exceeded those in any previous period. The dollar value of sales in the domestic market was $249,125,000 compared to $221,664,000 in the 1949 fiscal year, and in- cluded for the full year the price increase made in July 1948. Export sales at $6,627,000 showed but little change from 1949, and total sales of $255,752,000 were approximately 12% higher than $228,372,000 sales last year. We made further improvements in oper- ating efficiency, especially in handling and preparing leaf tobacco. These improvements, plus the increase in sales, made possible a partial offset to higher leaf costs. Net earnings after all taxes were $15,303,184 compared'with $12,498,058 for the previous year-a return of 8.94% on the total investment employed. $6,784,657 of the net earnings were declared as dividends to the stockholders. In March the regular quar- terly dividend on the Common Stock was in- creased to 750 and an extra dividend of 750 was declared. From the net earnings $8,518,527 were reinvested to help provide for additional needs arising from our continued growth. Inventories of leaf tobacco were on a greater scale than ever before to provide adequate stocks of tobacco of Philip Morris quality to protect the upward sales trend. These added leaf inventory requirements were financed by bank borrowings, resulting in an increase from $30,000,000 to $55,500,000 in that part of our capital which we borrow from banks. Under these circumstances, we deemed it advisable to prepare for additional perma- nent capital to reduce current bank borrowings. In February we moved our administrative offices to 100 Park Avenue. A long-term lease was taken on office space suited to our increased business: The people who coordinate the activ- ities of our Company now have most efficient office facilities. In the following pages we include detailed information about the processes of our business which contributed to the results summarized here.

SALES PROMOTION AND MERCHANDISING Under Ray Jones, Vice President in charge of Sales, our 500 trained salesmen served over a million wholesalers and retailers last year. The Sales Promotion and Merchandising staff develop sales aids and instruct our salesmen as to their best use in display and consumer serv- ice. Thus, our salesmen are often able to help both wholesalers and retailers to increase sales not only of our products but also of other items which they carry. :', DisplaY material is prepared to aid public campaigns of various sorts. For example, last year we developed a campaign and supplied material for use in hotel rooms, on merchandise vending machines and in other appropriate places in connection with "Make Every Week Fire Prevention Week." The campaign was endorsed- by the National Fire Protection Association and the National Board of Fire Underwriters. Salesmen make periodic visits to our fac- tories and meet with other parts of our oper- ating team, thus broadening their knowledge of our products. This knowledge makes their train- ing most effective in their daily contacts with distributors and the consuming public. The sales force is kept up to date on our advertising and promotion programs and about coming events which provide opportunity to stimulate sales. Each field representative systematically reports his observations to headquarters. This two-way flow of information keeps the entire sales division constantly alert to changing conditions. I

I I ~ .. ~'~` u _ ' 1933 - 1934_<.T935 1936 1937 __1938 1939 1940 1941 1942.- 1943 1944 1945 1946 . 1947 1948 1949 1950 PURCHASING AND DISTRIBUTION Vice President W. C. Foley supervises the purchasing of all supplies and the distribution of products. He also acts in an advisory capacity to the Sales and Advertising Departments. The records of his department help in the planning of production schedules, and close control of purchases is facilitated by his daily contact with the Production and Sales Departments. Cigarettes in our warehouses and enroute are held to about two weeks' sales requirements, thereby insuring delivery of fresh merchandise. 9-

LEAF The first responsibility of the Leaf Buying Departments is to provide a sufficient quantity of selected cigarette tobacco of proper age to meet sales needs. Maintenance of our blends requires that we have on hand an adequate sup- ply of the quality types of tobacco we use from at least three crop years. To be certain of this, our trend of growth is taken into account in leaf buying. The dollar value of our leaf inventories, E a l 1940 I 1941 I 1942 I 1943 I 1944 based on average cost, has risen, reflecting the higher costs in more recent years. In view of official parity prices and govern- ment controls over tobacco acreage, we see little prospect of appreciably lower prices for domes- tic leaf tobacco in the immediate future. In the imported tobaccos, prices in dollars have in- creased less than in the domestic market. IMW~lm ~ 1948 1 1949 I 1950 ~.A +r"a.V; 1W ® z F ~ I Choice orientaf leaf is being selected for •removat from the Archbetl_warehouse in the presence of the Customs Inspector.