Tobacco Documents Online

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CONTI.N'1'S Directors and Offirers .......................... 2-3 I•'inaneial Highlights of tf e Year ....,.,. 4 The PreSident's Report ........................ 5 \tilprint, Inc . .......................................... 7 I{esaurcli .................................................. S Operattiuns .............................................. 10 Leaf .......................................................... 10 Philip Morris 0verseas ........................ 11 llarketinn ................................................ 12 llarketing, ... Tl e Brand Iniaae .... 14-15 Corporate Citizenship ..... ............... 16 Exeentic•e Personnel ...,..... ~.~ .................. 17 The Pre.idPnt's Office ............................ 18 :lndited Finaneial Statements ......,. 20-26 Four-Year Finanr•ial Smmuai,v ............ 27 Products of Philip Morris Inc. ..,.. 2S

nII;rCTnRs JOSEPH F. CULLMAN, 3rd 2/ ALFRED E. LYON, Chairman L. G. HANSON . WIRT-H. HATCHER CHANDLER.H. KIBBEE H. E. RIDDELL.~. TRArSFER.\GE\-TS: Cunrnnty Trust Co. of N. Y., 140 Broadal•ny, New Yorlc REGISTRARS: The Fir.<'t r ntinnnl City Bank of New I ork, 5:i ii'Ull Street, New York Bankers Trust Company, 16 li'crll Street, New Fork COL'xSEI.: Conboy, Hewitt, 0'Brir-n cC• Boardnama, 39 Broadlralt, Yelr York AUDI'rCRS: Lybrunct, Ross Bros. cG lIo atgovaery, 90 Brond Street, New York 2061674032

OFFICERS JOSEPH F. CliLLBIAti, 3rd President ~VI£T H. HATCHEIt Sezaior V ice Presidezzt JOH\ E. COOIi,IIA~ T'icePresidezzt,Diiez•sifacatioozd^Det•elopznent DB. ROBEIIT N. DuPI'IS VicoPresiclezzt,Researck d- Development CHA\ DLEP~ H. IiIBBEE Tice President, Treasurea• and Secretary ROBERT P. IIOPEP VicePresicleut, Chief of Operations GEOP.GE ~CEISS.lLA.\ Vice President, Director of 3farl:etizag AADIIEW C. BItITTO\ VicePresidezzt,Clzief of Manufacture ROGEIt AL GItEE\E VicePresidezzt,llcl2ertisizag GEOAGE J. HE\_A' VicePresiderat,DistriLution ItAi JO'-'~TES Vice President, Sales PAUL D. SRIITH 1 ire President and Gerzerad Corrn,cel HOWARD S. CULLMAN DR. JESS H. DAVIS HENRY P.. BLU\I Controller JOIi-Y, A. HADTPSON d.ssistaut Treasurer COII'-\IELIA CRAIG 9.ssistavzt Secretary PAULI\ E IVAG'EII Assistant Secretrtrt/ ARTHUR SNAPPER ROBERT P. ROPER K. H, ROCKEY

HIGHLIGHTS 1957 1956 Sales $408,813,852 $3,86193,733 Income Before Federal and State Taxes ' 32,721,339 29 692,528 ~. _- _ _ _ -- - Federal and State Taaes on Income 16,961,900 KE1b 286,900 ry \et Income . 15,759,439 35;628 ~ _ - - Earnings per Common Share 4.50 - 4.OS Coumion Stock Dividends Paid 9,410,548 ~ 8,911,685 ~- Earnings Retained for Future Operation and Risk 4,896,759 ~~ ~~,453,588 _ Current Assets __ 249,792,702 50,050,939 Current Liabilities 108,527,504 ~ 0 157,378 Working Capital 141,265,198 r~ 893.5E _ The Notes to Consolic7rrted FhaanCial Stntemeuts shmzild be read in cnnjnaetion zritk t7~e above data. 41

1957 A\ \ LT AL REPORT-PHILIP MOIiPIS Ii~TC. For the twelve months ended December 31, 1957, consolidated net sales were $408,813,802, an increase of 0.8Go over the $386,193,733 for the previous year. Net income of $10, 7 59,439 compared tvith $14,405,628 for 1956, an increase of 9.400. Earnings for the year amounted to $4.50 per share, compared with $4.08 for 1936. The consolidated operations of Philip Morris Inc. for 1957, and the comparable fig•ures for 1936, have been restated to include the operations of llilprint, Inc. for both years. In addition to the re-ular dividends on the Preferred Stocks, four quarterly dividends of 75c per common share were paid during 1957 which represented the 30th consecutive year in which Philip Morris Inc. has paid dividends on its Common Stock. The total of $3.00 per common share paid during 1937 was the same as in the past seven years. The Company's sales in 1957 were the highest in its history. lIarlboro filter ci~arettes continued their upward trend and became leadin; brand. Ci~arette consumption increased in 1907 to an all-time peak, and with the increase in our national population the outlook for the industry seems proniisinIg. our J/

At the Annual Meeting of Stockholders in April, the Compail-~ -'s charter was amended to permit it to activate a program of diversification. Your niana~enient and Board of Directors feel that by joining the -reat stability of earnings of the cigarette industry Nvith souiidl5- mana-ed coiupaiiies having above average growth prospects, the Company will be in a position to increase its future potential and earnino-s. The broadened base of the Company's operations and the addition of iuan5r skilled people are assets of great iniportaiice which are not reflected on our balance sheet. As the first step iii this lon-g-raii~.ge program of diversification, tlie'ae<luisitioii of llilhriiit, Inc., a leading, company iii the flexible packaging industry, was approved at a special uieetin, of stockholders in May, 1937. The stock of this compam, was acquired in July in exchange for Philip Morris common stock. The considerable increase iii your Company's tan,ible net worth and «-orking, capital duriu- the year, as a result of this acquisition, is not reflected in aiiy of the comparative fi~,•ures in this report because prior years' fi`~•ui•es have been i•e stated as indicated in the \ otes to Cozisolidated Financial Statements. G/

These a•e typical scenes in the bliiprint plants where skilled craftsinanship, iuode)~i eqeeipaneut and strict qaialitg control resuit in tlze p»,oduction of top-rated fle: - ible pachaging for Amcrica's lcading consagner prodttcts. In the competitive world of flexible packaging, llilprint. Inc. of llilwaukee, Wisconsin is a pioneer and leader. It is famed in its huge industry as the first American company to print on cellophane. It is well known as the first company in the world which ever printed, in multicolor, on aluminum foil. It was the first eompany to apply print successfully to a sheet of polyethylene. Its reputation for quality pachages and printin.- is outstandina. The last time you ~-isited a supermarket or grocery store, you probably picked up and carried out a lIil- print packaae. Milprint packages the products of hundreds of companies in no fewer than sixty-five industries. This array of packages includes among others polyethylene. cellophane and pliofilm bags. paraffin-coated litlwaraphed cartons and laminated color-printed aluminum foil wraps. Clearly lIilprint's packaging business is comples, its technoloay intricate; it employs the highest cali- bre crafts and skills in American printing today. Flexible packaging is, in fact, one of the fastest-mov- > _ ~ --t-~....,N in~- husinesses in our fast-moving modern world. Today. Milprint operates ten plants in the L"nitecl States, with combined manufacturing space of well over 1,000.000 square feet. Since 1946, it has owned the Nicolet Paper Corporation of DePere, Wisconsin. one of the outstandina glassine paper mills in the country. It maintains Product Development and Pe- search Laboratories. and many new packages now =racin- the counters of our markets were created in this department. Milprint employs over 3,000 people. Itt has asso- ciate companies in twenty-four foreil-n countries which look to :llilprint for the ideas and the tech- nidnes of iuodern American packaging. Developments in the packaffina field have been out- standing in the past ten yeai,s but the need for ne«- and novel packaging is never outgrown. New food teclmolo0es such as irradiation hy atomic fission and new chemical preservatives such as antibiotics will all involve new developments in packaging and. in turn, open new areas and opportunities for lIilprint. 7/

em P.ESEARCI3 The Company's researeh program R-as a,ain es- panded during the year. It lieeaine apparent that the Department's facilities were inade(luate and would beeome more so when the Department set up its propo,sed centralized research activities fbr the Company and its snbsi(liary. .1coordiu-ly, your Board authorized the voii,triuction of a larre wudern lalioraturv to I e lo cated near onr new factory ware- hotise on a (f5-acre tract the Company is developinn in Richmond. It is expected to be completed aronnd June of 1939 at a cost of over three niillion dollars. This new laboratory, which will give us the finest facilities in our indnstry. will he known as "The lieComas Research Center." The building and its facilities will he a tribute to onr late Presi<1ent, 0. Parker lIcCoiuas. A eonsiderable amount of time and effort were devoted to help implement the diversification pro- gram in the technical field. Because of the many areas of mutuall research and technical interest found to exist between Philip 1llorris and its new subsidiary, a committee of research personnel has been forined and will meet regularly. This will lead to better coordination of the research efforts of the 81 parent Company and its subsidiary and better utili- zation of the potential advantages of our diversifi- cation program. Increased use was made of outside research lab- oratories and consultants to annment our own work and also to obtain broader and more specialized technical thinking on onr projects. For the past four 5-ears, your Cmipally has sup- ported the Tobacco industry Research Committee, which is investigating all aspects of tobacco use and health and is iual:ing inforniation on the subject available to the public. Dnring this period the Com- mittee has allocated some ~,'?,000,000 to specific proj- ects of independent scientists in fifty-two leadina universities, hospitals and research institutions. The Research Department continued to make im- portant-contribtttions to our overall l;nowle(Ige which is obviousl.v invaluable in enabling us to purchase the best possible materials and to process them so as to produce and package cigarettes of a quality, purity and flavor second to none. As in past years, many technical papers were presented to scientific bodies. More than a dozen patent applications are in preparation by our attorneys.

THE MoCOMAS RESEARCH CENTER: Dramatic evidence of the emphasis placed on all areas of research and development within the Company. Housing the most advanced equipment and incorporating latest design and construction, the McComas Research Center will comprise the nzost modezyz research facilities in the industry. Completion is pianned ,tor early summez•,1959. 9/

OPERATIONS I)ttring the year the Operations Department eontin- ued its program of hasic engineering and machinery development. This program has enabled your Com- pany to pay its workers as well as any other unit in the inclustry, and at the same time to control costs and to produce cigarettes and packages of the high- est quality. We are continuing our program of pro- curing the most modern equipment available either in the Vuited States or rurope so that the quality and the packabin.- of our products will continue to pace the industry. In order to handle more effectively and efficiently the constantly increasing amount of all types of wrapping materials for our Richmond factories. a new modern factory warehouse is beina constructed on a larbe tract of land owned by your Company in Richmond. This facility will be completed about Jiaue of this year. We are confident that the mate- rials-hancllina methods which can be used in this modern warehouse will result in substantial savings. The production of the dramatic new Parliament and the many improvements in the entire product line were outstaucliua achievements of the Oper- ations Department in 1957. LEAF There was not as much fine quality tobaero in the 1957-58 crop as was available in the previous year, nor was the crop as lar.ge as in 1936-57. Your Com- pany was fortunate, however, in having purchased rather heavily in the 1056-57 crop and thus having on hand somewhat in excess of its normal require- ments. As a result. we were able to be selective in our 1957-58 purehases and at the same time secure an adequate amount of fine tobacco at rather satisfac- tory prices. considering the overall price level. In spite of our favorable sitnation. however. there will be some increase in our leaf costs in 1958. 10/ Senior Vice President If'irt H. Hatcher (I.), a dean of the leaf tobacco ind2tstrg, discusses expansion of Company pro- dt~ction facilities with Robe7,t P. Roper (cente)-), Vice Pres- ident in Charge of Operations, and Manzifacturing T'ice President And7•ew C. Britton. F1

Phi[ip b2orris' successjui expansion into foreign markets is guided by a highly specialized staff in the Overseas Division. Left to right, Joseph M. Cahn, Vice President, Advertising; James E. Tao7zer, Export Sales Manager; Justus Heyncans, Senior Vice President; George C. Dawson, President; Sidney Bach, Vice President, Manufacturing; and Henri W. Emmet, Treasurer. i Our Overseas Division which was organized late in 1955 had auothcr successful year. Its sales and profits were up 8%. which we believe, from figures available to us, is well above the average for the industry as a whole. Our two subsidiaries, Philip Morris Ltd. of London and Philip Morris (Australia) Ltd., enjoyed substantial sales iuicreases. During the year the Marlboro brand, packed in the flip-top box, was introduced and has had an encouraging con- sumer acceptance in both countries. The 1'enezuelan company in which we have an investment concluded another successful year, with Philip Morris and Marlboro selling extremely well in that country. While we made no additional investments overseas in 1907, we did conclude a new manufacturing and licensing agreement in Switzerland. This arrange- ment, and our agreement in Panama concluded in 1936, have both enjoyed successful beginnings and we are hopeful that these arrangements will increase the sales of our brand5 in these two countries. We are continuing to explore actively opportunities in many other countries for local manufacture. PHILIP IIORI:IS OVERSEAS l1arlboros, now a familiar sight in maiy foreign shops, find favor with Swiss smokers. Mr. M. Grindat (r.), President of the Swiss Tobacco Retailers Union, receives first carton of Swiss-made Ma)•iboros fronn Mr. YP. E. Sebes, Manager of ORECLA (wholesalers). Agreenient to amnufacture and market Marlboros in Switzerland is signed by N O ~ Managing Director Fritz Schurch (l.) ~ , of Fabriques de Tabac Reunies, S.A.; Justus Heymans (center), Senior Vice O+ v ? President of Philip Morris Overseas; and Overseas Presideaat George Dawson. 1/ O A N

NO DIARgE TING The Philip ;Ilorris product lineup is strong. Marl- boro and Parliament, with Benson & Hedges and mentholated Spud, represent the Company in the growing filter field. The Philip Morris brand covers the unfiltered regular and long size fields. ;,~Iarlboro sales continued to gron and this product is now not only our largest seller but is firmly estab- lished as a major brand in the filter field. This is espe- cially significant in the face of the adoption of the flip-top box by all its leading competitors. Alon' with all non-filter brands in the industry, sales of our Philip llorris cigarette brand continued to decline. As 1958 opened, our new high-filtration. recessed- filter Parliament was being marketed at a popular price. The now famous blue. white and gold package remains the same, but the filter and blend have been modernized. The result is a cigarette with a remark- able filter performance that meets consumer demand for a fiill flavored cigarette that delivers a smoke with an unusually low tar and nicotine content. The neiv Parliaments were market tested extensively for three months prior to their national introdnction ; although it is too early to predict results. these tests indicate encouraging acceptance by consumers. This is yet another new product stemming from a co- ordinated program of development by the Marketing. Operations and Research Departnients. As previously reported. Philip Morris restyled the packa.ging for all its major cigarette brands in 1955 and 1956. During 1957, «•e added a self-starter tab to _llarlboros for easy access to the cigarettes. Also, Revelation and Bond Street pipe tobaccos icere put in smart new "Potuh Paks," laminated and flexible Successful coordination of brand activities is achieved through joint planning by Brand Managers. Shown above are (l. to r.): John T Landry, Parliament; John R. Latham, Philip Morris and Benson & z2/ Hedges; and Thomas S. Christensen, Marlboro. 1

Members of the Marketing Group who coordinate advertising, sales and dista•ibtttion are (1. to n): Ray Jones, Vice President, Sales; George J. Henn, Vice President, Distribution; George TTeissman, Vice President and Director of Marketing; Ross R. Millhiser, Assistant Director of Marketing; and Roger Greene, Vice President, Advertising. packages for greater moisture protection and more convenient use. the Bond Street having been created for us by lIiiprint. Inc. The result was a gratifying effect on the sale of these tobaccos. In 1957 Philip llorris received the paclcaging in- dustr5r's highest honor-the Packaging Institnte's Corporate Award. given "in recognition of an out- standing advance in applied packaging technology in which Philip Morris has commercially integrated packaging materials eqnipment and methods in the packaging of its products." During 1957 a price increase on non-filter brands became effective. As pointed out in our report to you last year we felt that an increase on all brands was long overdue, because our profits, lilce those of others in our industry, are being affected by constantly increasing costs. Conszroner-tested improvements underscore the Company's leadership in design and packaging. Top: Self-starter lifts cigarettes from Marlboro box, makes selection of first cigarette easy. Center: Redesigned to simulate the Parliament package and carton, shipping case further builds brand identity. Bottom: Revelation and Bond Street pipe tobac- cos, in new "pouch paks," offer smokers conveni- ence and long-time freshness.

Get wifh PHtLRP MORRIS ...a man's kind of mildness FF. nB.r,.. e.e.r kind uf smcke. ihe milEnc. mma f2m eeK. nch tshtto-N6.0.ro 11ut'C 5oN tu smcke nswnllr. And Ne new soasbprocf bcx keefa erm tLs Isrt ei¢usth f¢m and 4ah. GtL vIG R-. +w's kind sJ wJQ.uc Where there's a Man... there's a• Marlboro ' surprising mildness YOU GET A LOT TO lR(E... FIITER, FIAVOR, FtIP.TOP !OX .r....~.ru.. tn...- r-.v,r.-1 - The filter delivers a smoke of Left: Creation of Marlboro-The Sporting News Pro Football Award heightened interest in Marlboro sports telecasting. Marlboro Advertising Manager Perry Leary and National Football League Commissioner Bert Bell with coveted trophy. Right: MAX SHULMAN whose "On Campus" series appearing in hundreds of college newspapers receives unanimous student acclaim from coast-to-coast. ~ lT A V ILE T EN G ... the bl•ar-id image THE FIRST FILTER CIGARETTE IN THE WORLD THAT MEETS THE STANDARDS OF UNITED STATES TESTING CO. NEW HI-FI FILTER The creation of a strong, distinct and favorable brand image is an essential step in the successful selling of our products. A prime goal of our marketing function is to translate this image into sales. For each of its major cigarette brands, your Company, with its advertising agencies, has developed advertising programs utilizing carefully selected media to bring selling messages as frequently and effectively as possible to a maximum number of potential customers with impact. Each week, more than one hundred million different people are exposeft to the advertisements for Philip Morris, Marlboro, Parliament and Benson & Hedges cigarettes. Promoting our brands at point-of-purchase, establishing broad distribution and guaranteeing availability of fresh stocks assure the greatest co-ordination with our aggres- sive advertising programs. Accomplishing these objectives is the national sales force, covering markets across the nation. The Company uses spot television as well as programs to achieve advertising versatility. Frequent changes in our line-up of broadcast presentations keep them in tune with public taste and program popularity. Among our top-rated television and radio network programs during 1957 were: "Playhouse 90," the CBS-TV award-winning dramatic series; "Suspicion," new NBC-TV hour-long dramatic pro- gram; "The Jack Paar Show; ' a unique late evening variety program, also on NBC-TV; ABC-TV's "The Mike Wallace

~ Expat tofind in Benscn & Hedg~ ccrt+l. Ptruurca ~ ncotherd8arctteofhn.CosJiatobaccos,l_zw(cus in flavar. Unique Flta of n,tunt cellaon, aass.fibned for um Bttr+Hon. Custom erouthpkcc tc remu the flltor, w tlut only the fLvor touchn your llpr. BENSON & HEDGES• rt--awrts- Left and above: Some of the advertisements created and placed by our national advertising agencies. MARLBORO Leo Burnett Co. Inc., Chicago PHILIP MORRIS N. W. Ayer & Son, Inc., Philadelphia PARLIAMENT and BENSON & HEDGES Benton & Bowles. Inc.. New York Interview," fact-fil!ed, candid interviews with newsmakers by television's most searching reporter; in season, "The Baseball Game of the Week" and "National Professional Football" telecasts, both over CBS-TV; the exciting Big Ten regional footba!l telecasts on NBC-TV; and beginning early in 1958, weekly National League Ice Hockey on CBS-TV. The popular Philip Morris Country Music Show, in addition to its nightly personal appearances before packed houses across the country, is broadcast weekly over the CBS Radio Network. The Company's magazine campaign for Marlboro has been voted the best consumer print campaign by Tide Magazine's Leadership Panel. Strong newspaper campaigns have been employed for impact in special markets. Max Shulman, one of America's foremost humor writers and author of the best seller, "Rally Round the Flag, Boys!" is now in his fourth year of "On Campus With Max Shul- man," a special column series placed weekly by the Com- pany in the nation's college press. Outdoor billboards, Sunday magazine sections and point-of-purchase displays supplement the print and broad- cast media campaigns to further create strong selling identities for each of our Company's cigarette products. Distribution, sales promotion, public relations and packag- ing activity coordinate with the advertising to give Philip °Morris, Marlboro, Parliament and Benson & Hedges an intensive marketing program designed to produce sa!es. Philip Morris' noteworthy advertising formula includes entertainment ingredients combined to please every consumer taste. Exciting television personalities such as MIKE WALLACE (below), originator of the incisive TV interview... the Master of Suspense, ALFRED HITCHCOCK ... JACK PAAR f'The Jack Paar Show°)... ti_1 , plus "Playhouse 90" dramatic presentations ... ...and for radio listeners, the all-star, travelling Philip Morris Country Music Show.

Employee College Scholarship Selection Committee oneets to select recipic2its of ammal scholarship auai-ds. (I. to r.) ii'illiam A, Stua)•t of the Educational Testing Service of Princeton, N. J., adviinistrato•s of the scholarship pro- gram; Dr. Geo•ge 1y1. d?odlin, President of the Universitzl of Rich-ntond and Chairman of the Selection Committee; Dr. ti-illiam F Ekstrom, Head of the English Dehart?nent, University of Loziisville; and Dean Charles C. Cole, jr., Assista7at Dean of Columbia College, Nea,,, York City. CORPORATE CITIZE NSHIP Philip Morris has long maintained that its greatest asset is its eiiiployees. for it is their combined and individual shills. talents and interest which have led to the Company's growth. At the same tinie, Yhilip lIorris has recoallized tlle need and responsibility for industry to support npecial prol-ranis to help elu- cational institutions train students for our nation's aroR'llla needs. The first scholarships under the Philip ;ilorris Employee College Scholarship Plan «•ere granted in September to the children of six of our employees. Under this plan the recipients may choose any col- leae or iuliversity conrse leading to a liachelor's degree in a four-year term at the college or univer- sity- of his or her choice. The Conlpaily's employee seholarship program gives substallce to its belief that the ]ceystone of American clemocracy is its educa- tional Systeiii and an eclucated citizenry-. This year Philip Morris added to its program liy contributiua a scholalship to -Michigan State i-ni- vei.5ity's top-rated food distribution course for stu- dents inteliding- to make food-sellinl- their etueer. It is the first cigarette coiipany to do so. Iour Coin- pany- also nial.es regular grants to the Empire State Through the Philip Morris Employee College Scholar- ship Plaq¢, the Conipany of- fers educational assistance to qualified sons and daugh- tea•s of employees. Margaret W. Heston, oae of six schol- avship winners in 1957, ac- cepts congratulatiozs from Chandler H. Kibbee, Piee President avd Chief Finan- ddI cial Offam•, as her father, Russell G. Heston, Conpany Cashier, looks on. Foundation of Liberal Arts Colleges which gives financial aid to some tweuty-three liberal arts eol- leaes; to the Iielltucky Independent College Fonn- dation (aiding eight colleges); to the Virginia Fonndatioll for Independent Colleges (aiding twelve colleges); to North Carolina State College and to the Virginia Junior Academy of Seience. where the Company sponsors a series of anntial awards. Yhilip Morris participates actively in and coli- trihutes financially to Jnnior Achievenient, a nation- al organization mailrtained by American corpora- tions to provide the nreans by which high school-abe youngsters can learn for themselves how the Amer- ican syste:u of free enterprise works. Each of these actions goes beyond the creation of a distinet and favorable public countenance. They point up the Company's awareness and interest in these special fielcls and help it attract as employees the talents and fresh approaches of new aenerations. The personnel ot y-oiir Company are also regnlar contributors and devote considerable volunteer «•ork to uany national and conlmunity welfare, civic and patriotic organizations. f

EXECUTIVE PRRSO\\LL _ In \ovember. President 0. Parker lIcComas died. His foresight and courage, his ability to forge a strong team and above all his adherence to the very highest prineiples of Ainerican business made him a beloved and respected fignre not only among his asso- ciates in the Company. but to all who were privileged to know him in the tobacco industry. IIis active interest and participation in civic and cliaritable organizations carried this respect and atfection for him into many other areas. At the Annual 111eeting of stockholders in Rich- inond last April, Dr. Rohert N. Dnf'uis, Vice Yres- ident in Charge of Research, was elected a Director of the Company. At subsequent Board meetings. Chandler H. Kibbee, the Company's Chief Financial Officer. was elected aViee President and was also elected to the Board of Directors. In addition, Robert P. Roper. Vice President in Charge of Operations, and J. Harvie Wilkinson, jr., President of the State- Planters Bank of Connnerce and Trusts Co. in Rich- mond. were also elected to the Board. Wirt H. Hatcher. Vice I'resident in Charge of Leaf, was elected Senior Vice President of the Company. New executive promotions made during the year include the appointiiient of Vice President George Weissman to Director of Marketing with the addi- tional responsibilities of coordinating and directing the Company's sales, advertising. market research. pacicaging and public relations. Vice President John E. Coolnnau. previously in charge of Organization, Planning and Control, was placed in charge of the Diversifieation and Development program. Andrew C. Britton was elected Vice President, Manufactur- ing and Roger Greene, Vice I'resident, Advertisinnt at the -April meeting of the Board. Paul D. Smith, formerly a partner of Conboy. Hewitt, O'Brien & Boardu an, was elected a Vice I'resident and General Counsel. The passing of Clark T. Ames, jr., and Walter N. McFadden were saddening occasions this year. Mr. Anies. formerly Vice President. Chief of Operations, had giveu Philip Morris many years of hiti inspired abilities and devoted efforts prior to his retirement early last year. Mr. McFadden. who served as Vire President, Purchasing. had played a key role in the Operations Department since lie joined the Company in 1926. p

To provide coordination as coirtinuiiig espausion iiiakes Philip lIorris operations more complex, and to plan further Company growth and expansion, nianaaemeut in 1957 established "The President's Office." agiroup which comprises, in addition to the I'resident. Joseph F. Cullman, 3rd4. five major Divi- sion heads. These Vice Presidents are George Weiss- nianl, Director of 1[arketiug; Roliert N. Dul'uis_, 1)irec-tor of Research; John I:. Coolmian;,. Director of Diversification aiid llevelopiueut; Cliandler II. Iiihuee:,. Chief Finaucial Officer ; and Robert P. Roper,;, Chief of Operations. THE PRESIDENT'S OFFICE , These men, in addition to division responsibilities. advise and consult with the President on planning and fundamental policies. Thus the Company will fully utilize its executive talents to continue its progress in the cigarette industry and to develop the full potential of the dit•ersifieation program over the coming years. 18/ i

'We believe that your Company made sound progress in 1957, not only by inlprovina its position in the cigarette industry, but by its first move into diversification. -We are confident that the result will be further growth in 1958. j Qx", JOSEPH P. CULLbiAN, 3rd President FeSruary 28,Y958

LYBRAND, Ross BROS. & MONTGOMERY CERTIFIED PUBLIC ACCOUNTANTS w ror+n ~~ COOPERS P.. LYDRA::D GUTSAOC THErVNITC. Si~TES 20/ To the Board of Directors and Stockholders of Philip Morris Incorporated; We have examined the consolidated balance sheet of PHILIP MORRIS INCORPORATED and its Consolidated Subsidiaries as of December 31, 1957 and 1956 and the related consolidated state- ments of earnings and surplus for the years then ended. Our examination was made in accordance with generally accepted audit- ing standards, and accordingly included such tests of the accounting records of the companies, other than Milprint, Inc. and its sub- sidiaries,'and such other auditing procedures as we considered necessary in the circumstances. As to Milprint, Inc. and its I subsidiaries, we were furnished with their financial statements for 1957 and 1956, together with reports thereon of other certified public accountants. In our opinion, based upon our examination and the reports of other certified public accountants, the accompanying balance sheet and related statements of earnings and surplus present fairly the consolidated financial position of Philip Morris Incorporated and its consolidated subsidiaries, at December 31, 1957 and 1956 and the consolidated results of their operations for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis. New York, January 29, 1958. N a o+ ~ o+ v ~ 0 CA 0

PHILIP lIORIiIr' I\COIiPOIi _kTh]I) F 10 'a (Ioacorporatod in Virginia) AND ITS CONSOLIDATED SUBSIDIARIES Cn-NSnLIDATED ST ATE_IIENT OF EARNINGS for the years ended December 81, 1957 and 1956 (A'ote 1) 1957 1956 Net Sales ......................_............................................................................. .. $408,813,852 $386,193,733 Cost of goods sold .................................................................................... 318,345,805 30 6,563,105 Cost of shipping goods, selling, advertising and general administration .................................................................................. 53,065,307 45,702,942 371,411,112 352,266,047 Operating income ............................................ .......................... 37,402,740 33,927,686 Nonoperating income, net ........................................................................ 468,870 342,233 37,871,610 34,269,919 Interest .................................................................................................... .. 4,139,068 3,564,017 Prior service contribution under company's retirement plan .............. 144,102 144,102 Provision under deferred profit-sharing plan ........................................ 867,101 788,544 Plant closing expenses .............................................................................. - ; 80,728 5,150,271 ~ 4,577,391 Earnings for year before provision for federal and state taxes on income ................................................................ 32,721,339 29,692,528 Provision for federal and state taxes on income .............................. ... 16,961,900 15,286,900 N ~ Net earnings for year .............................................................. $ 15,759,439 $ 14,405,628 Q, ~ .p I The acconpanying notes are a7z integral part of the financial statements. 21/

PHILIP \IOhMS INCOhPOR:k'I'I:D (Inrorporatedin Vir~inial AND ITS CONSOLIDATED SUBSIDIARIES COT SOLIDATED BAL.A1\TCE SHEET December 31, 1957 and 1956 (Note 1) ASSETS Current: 1957 1956 Cash .................................................................................................... $ 23,034,538 $ 21,501,845 United States Government securities, at cost ................................ 1,383,844 930,092 Notes and accounts receivable, less allowances for discounts and doubtful accounts ...................................... 19, 849,152 19,939,336 Inventories : Tobacco and tobacco products, at average cost : Leaf tobacco .......................................................................... 181,681,730 185,131,189 Manufactured stock 7,230,196 5,972,121 Stock in process, revenue stamps and operating supplies 9,669,258 9,126,376 Other inventories, at the lower of cost (first-in, first-out) or market '. . ...................................... 6,943,984 7,449,980 Total inventories .............................................. 205,525,168 207,679,666 Total current assets .......................................... 249,792,702 250,050,939 Property, plant and equipment, at cost : Land, buildings, machinery and equipment ................................... 60,502,824 56,278,756 Less, Allowances for depreciation ........................................ 17,907,587 15,548,158 42,595,237 40,730,598 Other assets: Notes receivable, due after one year .............................................. 1,174,280 1,634,934 Investments in and advances to unconsolidated subsidiaries, at cost (Note 2) ................................................ 3,182,515 3,170,328 Prepaid expenses and deferred charges 059 1 973 896 469 1 ........................................ , , , , N 0 Brands trade-marks and good will 1 1 , ................................................ ~ $298 717 794 $297,483,269 ~ , , v ~ 0 The accompanying notes are an integral part of the financial statements. U7 N 22/

LIABILITIES Current: 1957 1956 Notes payable .................................................................................. $ 80,700,000 $ 81,100,000 Long-term liabilities due within one year .. .. ... ......................... 1,600,000 2,000,000 Dividends payable . . . .... ...... .......... ........................................... 2,713,471 2,425,462 Accounts payable and accrued liabilities .... ................................... 11,511,194 12,128,790 Federal and state taxes on income .................................................. 12,002,839 12, 503,126 Total current liabilities ...................... .................... 108,527,504 110,157,378 Long-term liabilities, less amount due within one year shown above: 25/3 °Jo Sinking Fund Debentures, payable $1,600,000 annually to maturity on April 1, 1966 and balance of $16,000,000 at that date ....... .......................... 7,200,000 8,800,000 41/.~ e notes payable, $400,000 annually through January 1, 1966 and $1,000,000 in 1967 ................................ 4,200,000 4,600,000 l~Iinority interests in subsidiary companies ......................................... 29,908 26,843 Total liabilities ...................................................... .... 139, 957,412 143,584,221 CAPITAL - Stockholders' equity (Note 3), represented by: Cumulative preferred stocks, par value $100 per share ............... 29,732,000 30,062,600 Common stock, par value $5 per share (Note 4) .......................... 16,359,225 16,359,225 Capital surplus ' . . .... .... ...... ..... ..... ... ....... ............................. 37,182,806 37,138,777 Earnings retained in the business (Note 5) ................................ 78,558,522 73,661,763 161,832,553 157,222,365 Less, Cost of preferred stocks held in treasury ...................... 3,072,171 3,323,317 N 158,760,382 153,899,048 0 Q+ .+ $298 717 794 $297,483,269 o+ , , ~ .a The accompanying notes are an integral part of the financial statements. 23/

PHILIP JIOYIiIS I\CORi'OP aTIi'D (Inrorpora6ed ivi Virghaia) NIr AND ITS CONSOLIDATED SUBSIDIARIES C(NSOLIDA'1'LI) STATEMENTS OF St hPLUS for the years ended December 31, 1957 and 1956 (Note 1) 1957 1956 Capital surplus: Balance at beginning of year . .. ... ...... . ................................ ...... $37,138,777 $37,103,806 Adjustments due to retirement of referred p stocks through sinking fund ........... .. .....................;........ 44,029 34,971 Balance at end of year ............................................ $37,182,806 $37,138,777 Earnings retained in the business: "' Balance at beginning of year: Philip Morris and its Subsidiary, Benson and Hedges ........... $60,046,760 $56,985,553 Milprint and Consolidated Subsidiaries ....... ..................... 13,615,003 12,222,622 73,661,763 69,208,175 Net earnings for year per accompanying statement .................... 15,759,439 14,405,628 89,421,202 83,613,803 Deduct : Cash dividends declared : Philip Morris : On cumulative preferred stocks: 4 % Series .. . ................... ..................................... 687,234 688,784 3.90 o Series .. ... ..................................................... 351,571 351,571 On common stock .......................................................... 9,238,616 8,661,699 10,277,421 9,702,054 Milprint : On common stock 171,932 249,986 10,449,353 9,952,040 Expenses incident to the combination of Philip Morris and Milprint ................................. 413,327 10,862,680 9,952,040 ~ Balance at end of year (Note 5) $78 522 558 661 763 $73 +y ....................... ...... , , , , o+ V ~ The accomp)anyiqzg notes are a9z integral part of the ,financial statements. O U7 .A 24/ _~= .,~... .

PHILIP MORRIS INCORPOR ATED 1--) (Incorporated in Virginia) r ff AND ITS CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINA-NCIAL STATEMENTS 1 Principles of Consolidation: The consolidated financial statements include those of the Company and its active domestic subsidiaries except a corporation engaged in the purchase of foreign leaf tobacco. In 1957, the Company by an exchange of its stock acquired substantially all of the out- standing stock of Milprint, Inc. For account- ing purposes, this transaction was treated as a pooling of interests; consequently the accom- panying balance sheets and statements of in- come and surplus include the accounts of both companies for each period shown. In a similar transaction in 1954 the Company by an exchange of its stock acquired substan- tially all of the outstanding stock of Benson and Hedges. Under restrictions imposed by the American Institute of Certified Public Ac- countants covering transactions of this nature, it was necessary to account for this exchange as being, in effect, a purchase and to reflect good will of $8,493,494 in the consolidated financial statements (increased by $85,479 through subsequent acquisitions). In 1957, the Institute by amendatory action changed its requirements. Thereupon the Board of Di- rectors of the Company directed that the Ben- son and Hedges transaction be accounted for retroactively as a pooling of interests, as was done in the case of the similar Milprint trans- action; however, the Board decided that the accumulated retained earnings of Benson and Hedges at the date of the exchange of stock should remain in the consolidated financial statements as capital surplus. As a result of the foregoing combinations, the consolidated balance of capital surplus at the beginning of 1956 reflects reductions of $8,493,494, explained above, and $1,153,836, representing the excess of par value of com- mon stock of Philip Morris issued over the par value of common stock of Milprint received in exchange. 2 Unconsolidated Subsidiaries: Based upon the latest available financial state- ments, the net assets applicable to the invest- ments in and advances to unconsolidated sub- sidiaries at December 31, 1957 amounted to approximately $3,698,000 and the equity in earnings for the year then ended amounted to approximately $272,000. No dividends were received from these subsidiaries during 1957. 3 Capital Shares: Authorized at December 31, 1957: Preferred, 297,320 shares Common, 5,000,000 shares Outstanding (including treasury stock): Preferred: 1957 1956 4% Series .. ......... 175,859 177,858 3.90% Series ........ 121,461 122,768 N 271 845 Common ..................3 3,271,845'7 ` 0 , , ~ *Includes 384,C1 ;? shares which were issued in exchange for a like number of shares of Milprint, Inc. (see Note 1). (Continued) 25/

NOTES TO CO__~N-SOLID _~_TED T'IN _k\ CI A_L STATEIZEN TS (Continued) In treasury (preferred): 1957 1956 4 % Series ................ 4,163 5,712 3.90 ~o Series ............ 31,316 32,623 The Company is required to set aside annually, in sinking funds, amounts sufficient to redeem 1,999 shares of preferred stock, 4 Jo Series, at $105.50 per share, and 1,307 shares of 3.90% 'Sefies at $100.75. Shares held in treasury at December 31, 1957 are sufficient to fulfill sink- ing fund requirements for the ensuing year. The preferred stock is redeemable at any time, otherwise than through sinking funds, at $105.50 per share plus accrued dividends for 4% Series and at $102.75 per share for 3.90% Series to May 1, 1958 and at diminishing amounts thereafter, but not less than $100.75 plus accrued dividends. Preferred stockhold- ers are entitled to such amounts upon volun- tary liquidation or to $100 per share, plus accrued dividends, upon involuntary liquida- tion. 4 Stock Options: At December 31, 1957 and 1956 there were outstanding options held by officers and other key employees to purchase, subject to certain limitations, 58,666 and 68,050 shares, respec- tively, of the common stock of the Company at the closing market prices ($43.125 per share in 1956 and $45.50 in 1955) on the dates of issuance of the options, which expire on vary- ing dates up to November 1, 1966. During 1957, no additional options were issued and options for 9,384 shares were canceled. No op- tions were exercised during 1957. At Decem- ber 31, 1957 and 1956, the number of unop- tioned shares available for the granting of options amounted to 41,334 and 31,950, re- spectively. 5 Dividend Restrictions: Under the provisions of the agreements cov- ering long-term liabilities and preferred stock, there are certain restrictions with respect to the payment of dividends (other than stock dividends) on the common stock and to the purchase, redemption or retirement of capital shares. At December 31, 1957, approximately $44,756,000 of the consolidated earnings re- tained in the business was free of such restric- tions. 6 Depreciation: Provision for depreciation of plant and equip- ment charged to costs and expenses aggregated $3,388,220 in 1957 and $3,012,303 in 1956. 2G/

I'OL R-YTAR hI1AN-CIAL SI MM.aRY (E.•cept per share fiyin•es, all clollar amotnifs are iu thousands.) AN::>';AL STATISTICS : 1957 1956 1955 1954 Net Sales 408,814 386,194 337,979 330,592 Cost of Goods Sold 318,346 306,563 271,171 267,139 Gross Opei-ating Profit 90,468 79,631 66,808 63,453 Shipping, Selling, Advertising & General Administration 53,065 45,703 36,510 33,822 Operating Income 37,403 33,928 30,298 29,631 Income Deductions, Net 4,682 4,235 3,166 3,832 Earnings (Before Taxes) 32,721 29,693 27,132 25,799 Federal and State Taxes on Income 16,962 15,287 14,376 13,829 Net Earnings 15,759 14,406 12,756 11,970 Cash Dividends: Common Preferred 9,410 1,039 8,912 1,040 8,885 1,043 8,847 1,185 Net Earnings Retained in the Business 4,897 4,454 2,828 1,938 Net Earnings per Common Share 4.50 4.08 3.58 3.30 YEAR END STATISTICS: Net Property Account 42,595 40,731 35,299 35,307 Working Capital 141,265 139,894 144,995 149,021 Long-Term Debt 31,400 33,400 35,200 37,000 Preferred Stocks 29,732 30,063 30,393 30,724 Common Stock Equity 132,576 127,670 123,652 120,360 Number of Shares of Common Stock Outstanding 3,271,845 3,271,845 3,271,845 3,271,845 Book Value per Common Share 40.52 39.02 37.79 36.79 These statistics combine information for Philip Morris, Benson and Hedges and Milprint. For the years 1954 and 1955 information insofar as it relates to Milprint is as of, or for its fiscal years ended May 31 following the close of the calendar years. Outstanding shares include in all periods the equivalent of Philip Morris shares issued in exchange for shares of Benson and Hedges and Milprint. Reference should be made to Note 1 of the accom- panying financial statements regarding principles of consolidation.

PRODUCTS OF PHILIP MORRIS, INC. Philip Morris-"A man's kind of mildness. Natural-tasting, good-tasting tobacco clear through. No filter-no foolin'." Long size in the flip-top box and regular in the familiar soft package... Marlboro-"You get a lot to like-filter, flavor, flip-top box."... Parliament-New high filtration plus exclusive recessed filter gives you the only cigarette that meets the standards ofthe U.S.Testing Co. Nowat popular price...Spud-A popular priced, filter eigarettewith a refreshing new taste. Lightly mentholated... Benson & Hedges-Here are certain pleasures no other cigarette offers. Luxurious flavor- costlier tobaccos -cigarette-case box-recessed filter mouthpiece. King and regular size.. . English Ovals-Artfully blended, top quality tobacco-a premium priced cigarette in a crush-proof box... Player's Navy Cut-Top grade mild Virginia tobaccos. Premium quality and price... crush-proof box... Bond Street-Our most popular smoking tobacco-an aromatic blend, now in the new handy "Pouch Pak"... Revelation-Five distinctive tobaccos combined for the pleasure of the most demanding pipe smoker, also in the new "Pouch Pak"...Country Doctor, Wakefield Mixture, Handsome Danand Barking Dog-Special mixtures of rich tobaccos designed to appeal to the varying tastes of pipe smokers... Lyon's Own-Unsurpassed quality smoking tobacco ... Benson & Hedges Cigars-A premium line of excellent clear Havana, LAYERBA and EXCLUSIVE IMPORT SELECTION Cigars. DESIGNED BY DESIGNERS S-PHOTDGRAPHY BT HYRDN EXRENBERG-LETTERPRESS BY DAVIS. DELAHEY. INC.. HEW YORK

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