Tobacco Documents Online

TIMN 440458

(Top row, left to right) O. Parker McComas Alfred E. Lyon Joseph F. Cullman, Jr. L. G. Hanson (Center row., left to right) W. H. Hatcher C. T. Ames, Jr. Joseph F. Cullman II[ (Bottom row, left to right) K. H. Rockey H. E. Riddell W. B. Ryan, Jr.

PRODUCTION AND DISTRIBUTION On July 15, 1954, production started on the new cardboard box for Marlboro filter cigarettes in our Richmond plant. This was an historic occasion in the American cigarette industry for it represented the first major packaging change since the soft cup paper package was introduced in 1908. The efficiency of the new machines enables us to compete in the popular price filter field with a superior package. The modern and attractive Marlboro box, com- parable in size and shape to the conventional paper package so that it can be used in vending machines and other ci=arette outlets, is formed in an intricate one-step packing operation around the cigarettes. Another major problem faced and solved by Pro- duction in the past year was the transfer of Parliament manufacturin, operations to our Louisville and Rich- mond plants.yConsiderable personnel retraining was necessary to adapt to the production techniques -in- volved in custom-making this quality brand. Our work in the packaging field which led last year to the introduction of the Philip Morris Snap- Open Pack and this year to the Marlboro box is continuing. We are constantlv re-examinins our production TIMN 440470

THE PHILIP MORRI S TEAM Complex personnel problems in- clttdin- those arising from the integration of Benson and Hedees into Philip Morris & Co. Ltd.. Inc.. were capably handled bv. left to right. New York Office ARanager Rohert A. Hartwick. Field Person- nel & Communitv Relations Direc- tor Robert Nj. Norris. Vice President Robert P. Roper and StafT Assistant Roger C. Pickhardt. The events of the past year strengthen our belief in the corporate policy of providing the Philip Morris team with workin- conditions and benefit programs that are the best in the tobacco industry and compare favorably with all industry. In 1954, the Philip Morris team faced the industry's difficult problems with skill, energy, enthusiasm and confidence. For the seventh consecutive year, Philip Morris labor and employee relations received the hi Thest industry ratings in Forbes Magazine's Annual Report on American Industry. With the transfer of Parliament manufacturinL, to Louisville and Richmond plants, it was necessary to dispense with the services of about 600 people in the New York area, all of whom, unfortunately, it was not feasible to relocate in our plant cities. In recognition of their services and in keeping with our sense of responsibility to all employees, we gave them sever- ance allowances and helped many find gainful employ- ment elsewhere. The assimilation of other Benson and Hedges personnel into the Philip Morris organization was successfully arranged. At the year end, 3,800 people were on our payrolls, approximately 1,600 of whom have been with the company for ten years or more. Approximately one hundred people are now receiving benefits under our Retirement Plan.

4 THE PRESIDENT'S LETTER During the nine months ended December 31, 1954, our new fiscal year end, your company's business was adversely affected by three major factors. These were, first, the decline in national cigarette consumption, second, the unusual costs attendant upon the consoli- dation of the Benson and Hedges operation with our own, and third, the delays inherent in developing and launching a popular priced filter cigarette with the first new type of packaging in over a generation. How- ever. despite these and other problems,~he earnings per ,hare were quite satisfactory. ` The nine months ended December 31, 1954 re- corded consolidated net sales of $217,008,564 and net income after taxes of $9,098,982, equivalent, after allowance for dividends on the preferred stock, to S2.85 per share. For purposes of comparing the year with future years, we have included operating figures for the twelve months ended December 31, 1954. During the calendar year we earned $3.53 p~r share, r compared with $3.90 per share for the fiscal year ended March 31, 1954. Four quarterly dividends of $.75 per common share were paid during 1954, rep- resenting 27 consecutive years in which your Company has paid dividends on its common stock. As stated above, 1954 was not a particularly good year for the industry. According to the best available estimates, cigarette consumption declined about 5%, and the decline in non-filtered cigarettes was much (71 greater. We believe that the sales performance of our Philip Morris brand was not out of line with that of competing brands. The consolidation and integration of the Benson and Hedges operations with our own, which involved transferring Parliament manufacturing operations from their New York City and Yonkers factories to our Richmond and Louisville plants, was consummated early in the Fall. This move obviously involved many major problems affecting both personnel and produc- TIMN 440462

C. T. Ames, Jr. Vice President in Charge of Production Joseph F. Cullman. Jr. Chairman of the Executive Committee Joseph F. Cullman I1I cxecntive Vice Preeiderrt L. G. Hanson Senior Vice President W. H. Hatcher Vice President in Charge of Leaf Tohacco Alfred E. Lyon Chairman of the Board of Directors O. Parker McComas President H. E. Riddell Wickes•. Riclclell, Bloonler. Jacobi & McGuire, Attorneys-at-Lcrw K. H. Rockey Retired W. B. Ryan, Jr. Retired O. Parker McComas President Joseph F. Cullman III Executive Vice President L. G. Hanson Senior Vice President C. T. Ames. Jr. Vice President H. W. Chesley. Jr. Vice President J. E. Cookman. Vice President Dr. R. N. DuPuis Vice President W. H. Hatcher Vice President G. J. Henn Vice President Ray Jones Vice President C. H. Kibbee Secretary and Treasurer R. P. Roper Vice President George Weissman Vice President H. R. Blum Controller Cornelia Craig A.rsistant.Secretary J. A. Hampson A.c.cistant Secretary Guaranty Trust Co. of N. Y., 140 Broaclway, New York The National City Bank of New York. 55 Wall Street, New York Bankers Trust Company, /6 Wall Street, Ne w York Conboy. Hewitt. O'Brien & Boardman. 39 Broadway, New York Lybrand. Ross Bros. & Montgomery, 90 Broad Street, New York °Y°IMINT 440461 3

I)turing, the year we further adapted our multiple-brand selling-structure to the current market conditions. (Top left) Sales I'roniotion trio. Michael Keith. Manager. R. S. Larkin. Director, Jack Gaynor, Field Manager. plan for correlation of point- ot-sale material with advertising themes. (Center left) Brand Advertising Managers. C. V. Schuchard, Parliament. J. R. Latham. Philip Morris. R. R. Millhiser. Marlboro. outline current advertising campaigns to Advertising Director R. \1. Greene. (Bottom left) J. R. O'Connor, Assistant to Sales Vice President, and Charles Sanders. Parliament Sales Man- a<,er. diacuss the application in the field of advertising and sales promotion plans. Pictured to the right are the stars of our three principal television and radio shows: Lucy and Desi Arnaz. stars of CBS-TV's "I Love Lucy." Gale Storm and Charles Farrell of"Mv l.ittle Mar<.[ie." CBS-Radio and Reed Hadley with guest star Barbara Whitin, on CBS-TV'.ti"Pnhlic Defender." TIMN 414®`ff69D 8 Vice Presidents Ray Jones. Joseph F. Cullman [[[, Harry W. Chesley. Jr. and George J. Henn formulate sales, advertising and promotion strategy for all brands. _~

NINE MONTHS ENDED TWELVE MONTHS ENDED DECEMBER 31, 1954 DECEMBER 31, 1954 MARCH 31, 1954 Sales $217,008,564 $282,774,523 $294,902,434 Income before Federal Taxes 19,248,982 24,045,276 26,014,638 Federal Taxes on Income 10,150,000 12,670,000 13,593,000 Net Income 9,098,982 11,375,276 12,421,638 Earnings per Common Share 2.85 3.53 3.90 Common Stock Dividends Paid 6,494,002 8,651,526 7,665,763 Earnings Retained for Future Operation and Risk 1,720,919 1,538,885 3,546,690 Current Assets 203,855,458 203,855,458 218,698,699 Current Liabilities 62,849,341 62,849,341 78,247,517 Working Capital 141,006,117 141,006,117 140,451,182 tion with resultant heavy extraordinary costs. The decision to take this step was made after careful studies ~ hich indicated sizable operating economies. Produc- tion costs on Parliament in both Richmond and Louis- vil(e are now most gratifying and indicate that the move will prove of considerable benefit. The new Marlboro lilter cigarette with its dramat- icallv new pack,i,,ing is now in process of being dis- tributed nationally and its initial reception by the public has hcen cncotu aging. The decision to delay the comp~iny's cntrv into the popular price filter field \\au occasioned hy yotnr management's belief that the .<<Ics potential of a fine (ilter cigarette in a new type C.ffdhoard hox would he -reater than in a conventional paper package. The obvious advantages of Marlboro's wliClue packaging should justify the delays which were causQd by the complexity of the new machinery and its resultant slow delivery. Our industry is still faced with problems. The changing pattern of consumer tastes, to which we referred in previous reports, was accentuated in 1954; the trend to king-size and filter cigarettes, at the expense of the regular size, continued; the health con- troversy reached new levels of public attention; the burden of excessive taxation continued. Your man- agement has been well aware of these problems, and with full confidence in the future has undertaken the followina steps: The introduction of the popular price Marl- boro filter cigarette. Additional emphasis on research, develop- ment, and engineering to bring to our products and processes the maximum possible scientific benefits and improvements. New aggressive advertising and promotional approaches specifically conceived for today's marketing conditions. A continuing program for the improvement TIMN 440463 5

EN processes with a view to applyin`, the newest techno- lo,ical developments to our plants. Our activities in the fields of Engineerinu. Machine Development and Oualitv Control were expanded during the year. The handling of manufactured stocks from the factories to the retail counters. a matter of inereasin,Ycomplexity because of the growing nuniber of brands. was expedited this year throu =h use of all modern modes of transportation and warehousing. Air freight, rail and truck facilities served our fiftv distribution points to insure rapid delivery of fresh goods to consumers. •_ i ® More than 50 patents cover the manufacture of the new filter- tipped Marlboro in its unique box. Production, Engineering, Research, and actually all de- partments of the organization worked together to speed the de- velopment of the new brand be- ing manufactured in Richmond. All Parliament manufacturing operations have been transferred to our Richmond and Louisville plants, thereby utilizing avail- able plant space. Certain econ- omies were effected by locating closer to sources of supply. When the demand for Marlboros exceeded the supply in Dal- las. air freight enabled us to quickly replenish dealers' stocks. J. E. Cookman. Vice President. works out production and distribution details involved in the shift of Parliament produc- tion to our Richmond and Louisville;plants with Director of Distribution Ray Nolan. General Traffic Manager Otto Olsen and J. T. Clemence. Assistant to the Production Vice President. TIMN 440471 13

SALES AND ADVERTISING 1 he changes in the cigarette industry and the transition of our Company from primarily a one-brand company to a multi-brand company was reflected in changes we made this year in our sales and advertising strategy. Organizationally, we have adapted our selling struc- ture to current market conditions. Brand advertisina managers have been placed in positions of authority and responsibility on Philip Morris, Parliament and the new Marlboro. Each brand's advertising is created and handled by a separate leading agency. The over- all coordination of the selling effort is achieved at the executive level. The popular price filter cigarette market grew sub- stantially in 1954, achieving 10% of the industry total. Currently, we are initiating national distribution on long size Marlboro filter cigarettes. In its unique box package and with its fine filter and blend, your man- agement is confident Marlboro will be a strong entry in this field. This confidence in the brand is based on the fact that it is the first ci(yarette, to our knowledge, to have been subjected to extensive consumer research before launching on a national basis. Our advertising strategy was also marked by a shift at the year end. Faced with increasing television costs occasioned by rising expenditures for shows and the ,rowin- number of stations, we sought co-sponsorship of the "I Love 1.ucy" and "The Public Defender" CBS-TV programs. Thus, on January 3rd, Procter & Gamble joined us in the sponsorship of "I Love Lucy" and beginning March 10th, the Revlon Company will share "The Public Defender." On radio we are follow- ing a similar pattern with co-sponsorship of "My Little Margie" on CBS-Radio network Sunday nights and participation in the new "Tennessee Ernie" show Wednesday. Thursday and Friday nights over CBS- Radio. These moves, similar to ones taken by other large advertisers, will 7ive us greater flexibility in our over-all advertisiny and better balance amonz news- papers, magazines, television and radio. Our 1955 program with increased emphasis available in printed advertisina should ;ive us many additional impressions for our advertisinr dollar. An estimated 6,730,800,000 Philip Morris and Par- liament advertising messages were delivered to Amer- ica during 1954 by our radio and television programs. and extensive newspaper and magazine coverage. During the year our sales force accomplished the distribution of kina size Parliament and extended the distribution of regular size Parliament. Forceful sell- ing and promotion behind the Snap-Open Pack on Philip Morris aided us in maintaining the brand's position in the fiercely competitive non-filter cigarette market. Our sales of smoking tobaccos, a small but healthy segment of our over-all business, increased as against a general decline in this industry classifi- cation. We are continuing to expand our efforts in the export market. These have been particularly fruitful in the Central and South American markets where Philip Morris is the leading brand in several countries. More a-gressive advertising and selling effort is being placed behind the expanded output of our English subsidiary. [n Europe, our competitive sales position is improving, but local governmental restrictions still inhibit our capitalizing on this market to the fullest extent. As the year closed our Australian subsidiary was preparing its sales campaign in that country, and in addition already had booked orders for export to India, Ceylon and New Guinea. 9