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I E EXPORT Demand for our brands abroad continued high, but the scarcity of dollars in foreign mar- kets affected by exchange controls put a positive limitation on our sales. Sales of $6,627,000 compared to $6,708,000 in fiscal 1949. RESEARCH Our success, built upon Philip Morris quality, results not only from use of the finest tobaccos but also from our method of making the cigarettes. In the process, the highly devel- oped art of tobacco blending is of great impor- tance, but our graduate chemists are also constantly engaged in further research. Cigarettes purchased periodically by our salesmen throughout the country are returned to one of our Control Laboratories for tests. This gives us a continuous check on our distribution controls, in- _. suringg factory freshness of products as they reach the consumer. TT

33.36°/° 1-3 YEARS Investment Per Job at March 31 M Our organization is made up of about 3,500 Philip Morris employees drawn from the ranks of the American people. Employees and their families benefit through group life in- surance, placed with the Aetna Life Insurance Company, and hospital-surgical-medical insur- ance, underwritten by the Blue Cross Plan or similar John Hancock Plan, as location dic- tates. Salaries and wages last year totaled $10,804,388. All participate in the Retirement Plan. The Fund on this date totals approxi- mately $3,250,000, under the trusteeship of J. P. Morgan & Company, Inc. The personnel of Philip Morris perform their daily tasks under a management policy which has a respect for human dignity and which commits itself to clean, sanitary and safe working conditions. Medical dispensaries and non-profit cafeterias are run for the con- 3,420 venience and health of all production personnel. Employees are kept informed of the Company's activities. They have pride in their association with it, pride in their products, and pride in the contribution which they are making to the Company's progress. Each has a personal interest in delivering to the public, day after day, year after year, a product as fine and uniform in quality as human care and scientific skill can make it. The American people have recognized this achievement and endorsed it with their patronage. As a result our Company has prospered. Its prosperity has been shared in by our employees and stock- holders through whom it is channeled back into the stream of the national economy. We are all proud of our team and of the team-work which has brought our Company to its present position. Length of Service of Our Employees TOTAL EMPLOYEES MARCH 31, 1950

ALFRED E. LYON Chairman of the Board __ CHIEF EXECUTIVE OFFICER 0. PARKER McCOMAS President CHIEF ADMINISTRATIVE OFFICER I E W. E. LIEBETRAU Vice President W. F. GREENWALD Director of Research R. P. ROPER Director of Personnel L. G. HANSON Vice President-Treasurer CHIEF FINANCIAL OFFICER Under the Financial De- partment are the offices of the Controller, H. R. Blum, and the Secretary & Assistant Treasurer, C. H. Kibbee. W. H. HATCHER Vice President MANAGER OF DOMESTIC LEAF Buying and storage of Domestic Tobacco is under this Department. R. H. KUHN MANAGER OF IMPORTED LEAF The buying, importing and warehousing of for- eign grown tobaccos are under this Department. W. C. FOLEY Vice President PURCHASING-DISTRIBUTION This Department han- dles the distribution of finished goods and the purchases of materials and supplies other than tobacco. C. T. AMES, JR. Vice President IN CHARGE OF PRODUCTION RAY JONES G. J. HENN Vice President Vice President IN CHARGE OF SALES SALES ADMINISTRATION The sales force, the Sales Promotion Department and the Merchandising Director are under this Department. E. W. DINWIDDIE Vice President MASTER BLENDER The manufacture of cigarettes and smoking tobaccos is under this Department. P. H. GORMAN Manager ADVERTISING Radio, Televinion and Publications advertising. G: C. DAWSON Manager EXPORT SALES

MANUFACTURING EFFICIENCY The manufacture of Philip Morris prod- ucts is under the supervision of C. T. Ames, Jr., Vice President in charge of Production. Mod- ernization programs have been completed in all our plants. Additional productive capacity is available by extra shift operations. New machines, balanced operation and improved methods, especially in the handling of leaf, helped the production teams to increase output while maintaining our high standards. Our factories ran on a full five-day week throughout the year except for holidays and vacation periods. Periodic meetings between employee rep- resentatives and the Vice President in charge maintain harmonious labor relations and help the over-all operation. The net investment in land, equipment and buildings, with approximately a million square feet, now stands at $8,971,018. The balance in the reserve, representing deductions from in- come made over the years to provide for re- placement of existing facilities, amounted to $4,719,987 at the end of our fiscal year. We own property adjacent to existing plants which could be utilized for construction of a new plant if advisable. In the meantime, our existing'facilities could take care of in- creased need with extra shift operation. Management and Board of Directors W. H. Hatcher, Vice President since 1939 and head of the Domestic Leaf Buying Depart- ment, was elected a Director to succeed J. E. Archbell, who retired last November. Mr. Arch- bell, in charge of our imported leaf buying since 1931, was succeeded by Russell H. Kuhn. Mr. Kuhn's many years of experience in the oriental tobacco markets and close association with Mr. Archbell fit him well to manage this department. Chandler H. Kibbee joined the Company in December as Secretary and Assistant Treas- urer, and L. C. Metzger is now able to devote himself solely to tax problems. Last December we announced our deep regret at the passing of Sterling Grigg after an illness of nearly a year. Mr. Grigg had ably assisted Vice President C. T. Ames, Jr. His fine character and warm friendliness are missed throughout our organization. ~ 0 t,sts r,~t hour cor,trol tf- ~- hloisture contcnt o` the 4 u f ~ igpr f` ~i~Et xm- It

9 `: Wan.President, E.,F..Hutchins (rightj, ans_wers ;_ q.visitor's questioi in _our Couisvi(te, p[ant. Cahn'e~:r:'+rrn--rrrt Fnr~' trrcichine c ® ® ® ® 9 gJCbh'.:_ ~i O L; a er~ r~fi#vi-P241 vkC1~~,icl C tt~ E. 0. McGhee explains a device for qvaf}ty''controf on our ~.~~.,.. making machmes to the President and the Chairman of_fihe .Boq'ird. + STATISTICS

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PHILIP MORRIS BALANCE SH.EET STATISTICS Balance Sheets at March 31, (000's omitt'ed) ASSETS Cash & Marketable Securities $ 8,652 $ 5,264 $ 4,857 $ 4,024 '$ 2,486 $ 2,320 $ 9,509 $ 2,393 Receivables 10,810 9,173 7,196 6,391 7,914 10,063 5,098 1,665 Inventories - 159,611 132,444 93,913 98,812 112,745 87,280 34,781 8,231 Other Current Assets 1,867 206 Total Current Assets 179,073 146,881 105,966 109,227 125,012 99,869 49,388 12,289 Net Property Account 8,971 8,301 6,828 6,468 4,989 5,110 3,017 1,250 Prepaid Items & Other Assets 1,051 1,117 937 1,049 1,391 1,929 2,262 122 Total Assets 189,095 156,299 113,731 116,744 131,392 106,908 54,667 13,661 LIABILITIES Notes Payable 55,500 30,000 - 5,500 44,000 16,000 - 3,800 Federal Taxes - 9,415 7,811 3,431 3,440 2,681 6,992 2,706 395 Accounts Payable 5,057 6,773 5,753 3,866 2,574 5,047 3,699 1,149 Other Current Liabilities 3,402 2,987 1,797 1,834 1,369 2,255 1,545 591 Total Current Liabilities 73,374 47,571 10,981 14,640 50,624 30,294 7,950 5,935 Long Term Debt 32,000 32,000 32,000 32,000 11,500 11,300 Reserves for Contingencies, etc. - 237 237 500 - 250 Net Worth 83,721 76,491 70,513 69,604 69,268 65,064 46,717 7,726 Total Liabilities and Capital 189,095 156,299 113,731 116,744 131,392 106,908 54,667 13,661 Net Working Capital 105,699 99,310 94,985 94,587 74,388 69,575 41,438 6,354 Net Asset Value of Common Stock 32.40 28.04 24.80 23.95 23.68 * 22.56 * 17.80 * 6.20 '-adjusted to present capitalization Figures for the year 1936 are on a consolidated basis (with American subsidiary).

10 YEAR ANALYSIS 0 The fiscal year of Philip Morris NET SALES (including Revenue Stamps) $255,752,000 $228,372,000 $171,258,000 NET SALES (including Revenue Stamps) , per $1,000,000 of net property 28,509,000 27,510,000 25,081,000 ANALYSIS OF OPERATIONS Net Sales (excluding Revenue Stamps) 100.00% 100.00% 100.00% Cost of Sales (excluding Revenue Stamps) 64.22 65.62 71.13 Gross Operating Profit 35.78 34.38 _ 28.87 Shipping, Selling, General & Administrative Expenses 14.90 15.15 _ 17.21 Net Operating Profit 20.88 19.23 11.66 Other Income .13 .09 .69 Total Income 21.01 19.32 12.3 Income Deductions 1.76 1.44 1.1 Net Income before Taxes 19.25 17.88 11.1 Federal and State Taxes on Income 7.54 7.06 4.10 Net Income 11.71 10.82 7.09 Net Income as % of Net Worth 18.28 16.34 8.56 Earnings per share of Common Stock 7.26 5.84 2.60 CAPITAL STRUCTURE % Long term debt 27.65 29.50 31.22 % Preferred Stock 16.39 18.85 20.43 % Common Stock and Surplus 55.96 51.65 48.35 ANALYSIS OF FINANCIAL POSITION Net Prop. Acct. as % of tang. net worth 10.72 10.85 9.68 Current Liabil. as % of tang. net worth 87.64 62.19 15.57 Total Liabilities as % of tang. net worth 125.86 104.34 61.29 Inventories as % of net working capital 151.01 133.36 98.87 Current Liabilities as % of inventories 45.97 35.92 11.69. Long Term Debt as % of net working capital 30.27 32.22 33.69 (1) After exchange of 2 shares of $5 pc

I MORRIS OPERATIONS Ltd., Incorporated ends March 31 $170,906,000 $178,686,000 $185,299,000 $177,901,000 $141,047,000 $112,310,000 $87,116,000 26,423,000 35,815,000 36,262,000 51,253,000 37,885,000 30,764,000 28,875,000 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 73.70 77.43 72.52 68.54 58.65 50.83 51.46 26.30 ~' 22.57 27.48 31.46 41.35 49.17 48.54 14.95 13.09 12.65 15.36 18.77 21.05 22.48 11.35 9.48 14.83 16.10 22.58 28.12 26.06 .80 .19 .28 .18 .28 .37 .35 2.15 9.67 15.11 16.28 22.86 28.49 26.41 .54 1.76 .98 .83 .78 .86 1.46 9.61 - 7.91 _.. 14.13 -. 15.45 -:: 22.08 27.63 24.95 3.83 .56 7.00 7.28 11.61 12.52 6.83 5.78 7.35 7.13 8.17 10.47 15.11 18.12 7.12 8.88 10.45 10.50 11.13 ----~-- _ 15.76 15.71 2.04 2.671>> 5.94 5.82 6.10 8.00 8.11 31.49 14.24 14.79 15.36 15.82 21.40 27.16 26.17 26.07 26.66 30.16 31.89 47.11 58.60 59.04 58.57 57.52 69.84 68.11 9.29 7.21 7.86 5.48 5.98 7.40 6.46 21.03 73.14 46.60 31.00 24.30 39.34 17.04 67.73 89.75 64.36 49.16 43.11 39.34 17.04 104.47 151.56 125.45 102.74 105.41 123.45 83.94 14.82 44.90 34.71 28.06 21.42 36.57 22.86 33.83 15.46 16.24 16.89 17.48 alue for each share of $10 par value stock.

RECORD OF PHILIP MORRIS OPERATIONS I Statements of Income for the fiscal years ended March 31, (000's omitted) Net Sales (inc(uding Revenue Stamps) $255,752 $228,372 $171,258 $170,906 $178,686 $185,299 $87,116 $26,876 Cost of Sales (Including Revenue Stamps) 208,985 188,656 146,694 148,412 159,799 159,051 67,456 20,171 Gross Operating Profit 46,767 39,716 24,564 22,494 18,887 26,248 19,660 6,705 Shipping, Selling, General & Administrative Expenses 19,470 17,499 14,641 12,752 10,953 12,080 9,106 3,498 Operating Profit 27,297 22,217 9,923 9,742 7,934 14,168 10,554 3,207 Other Income 172 101 5880) 683(2) 156 267 142 16 Total Income 27,469 22,318 10,511 10,425 8,090 14,435 10,696 3,223 Income Deductions 2,302 1,658 985 2,174(3) 1,476(4) 940(7) 592 421 Net Income (Before Taxes) 25,167 20,660 9,526 8,251 6,614 13,495 10,104 2,802 Federal and State Taxes on Income 9,864 8,162 3,491 3,293 4660) 6,692 2,766 394 Net Income 15,303 12,498 6,035 4,958 6,148(s) 6,803 7,338 2,408 Cash Dividends Declared (Common) 5,996 5,246 3,497 3,498 2,998 4,497 4,464 415 (Preferred) 789 818 836 863 817 866 85 - Net Income Retained in the Business(e) 8,518 6,434 1,702 597 2,333 1,440 2,789 1,993 Earned per common share adjusted to present common shares outstanding 7.26 5.84 2.60 2.05 2.67 2.97 4.06 1.93 Per share earned on common shares outstanding 7.26 5.84 2.60 2.05 2.67(6) 5.94 8.11 5.80 Common Shares 1,998,467 1,998,467 1,998,467 1,998,468 1,998,470 999,235 894,010 415,465 (1) Includes $409,890 profit on sales of securities after deduction of $137,000 of Federal income taxes thereon. (2) Including renegotiation recovery of $310,000 in connection with government contracts and net premium of $133,865 received on sale of 2s/8% Debentures. (3) Including premium of $472,000 paid on retirement of 3% Debentures, and provision of $500,000 for contingencies. (4) Includes $242,000 war-time packaging changeover 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. (5) 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 provisions of prior years' taxes. (6) After stock split 2 for 1. (7) Including provision of $250,000 for post-war and other contingencies. (8) Subject to minor surplus adjustments. Figures for the year 1936 are on a consolidated basis (with American subsidiary).