Tobacco Documents Online

44b TIMN 440485

CO_ LTD_~ SNO_~ NEW YORK THE COVER: A new generation of Philip Morris smokers demanded a King Size cibgarette, and one was created using the Special Blend N+'hich men and women have shared in comfortable comp:,nionship for twenty years. ~~~ 4404g6 ~

CONTENTS NARRATIVE PAGE PAGE Philip Morris in 1953 ................................ 6 Prices .......................................................... 16 Sales and Advertising ................................ 8 Leaf ............................................................ 18 Manufacturing and Distribution ................ 12 Research and Development ...................... 19 Finance ...................................................... 16 Management and Board of Directors........ 20 Philip Morris Team .................................... 21 TABLES Highlights of the Year ................................ 4 Working Capital ........................................ 15 Comparison with Industry ................Inside 14 Philip Morris Operations ..................Inside 15 Audited Statements ................................24-28 CHARTS How We Used Our Sales Revenue............ 9 Borrowed Funds, Leaf Inventory Benefits to Share Owners and and Excise Taxes .................................... 14 Government .......................................... 14 A Price Rise was Overdue ........................ 17 Ten Years of Payments and Benefits.......... 20 OTHER FEATURES Share Owners' Benefits .............................. 22 Philip Morris Products ..........................29-31 TIMN 440487 1

DIREC'I'ORS C. T. Ames, Jr. Vice President in Charge of Production G. P. Brauburger Conboy, Hewitt, O'Brien & Boardman, Attorneys-at-Law O. H. Chalkley Retired L. G. Hanson Vice President & Treasurer W. H. Hatcher Vice President in Charge of Leaf Tobacco Alfred E. Lyon Chairman of the Board and Chief Executive Officer O. Parker McComas President H. E. Riddell Wickes, Riddell, Bloomer, Jacobi & McGuire, Attorneys-at-Law K. H. Rockey President, The Arma Corporation W. B. Ryan, Jr. Retired z TIIVIN 440488

~JF'F'IC~R ~ Alfred E. Lyon, Chairman of the Board and Chief Executive Officer O. Parker McComas, President L. G. Hanson, Vice President and Treasurer C. T. Ames, Jr., Vice President H. W. Chesley, Jr., Vice President W. H. Hatcher, Vice President G. J. Henn, Vice President Ray Jones, Vice President W. E. Liebetrau, Vice President George Weissman, Vice President C. H. Kibbee, Secretary and Assistant Treasurer H. R. Blum, Controller Cornelia Craig, Assistant Secretary TRANSFER AGENTS Guaranty Trust Co. of N. Y., 140 Broadway, New York REGISTRARS The National City Bank of New York, 55 Wall Street, New York Bankers Trust Company, 16 Wall Street, New York COUNSEL Conboy, Hewitt, O'Brien & Boardman, 39 Broadway, New York AUDITORS Lybrand, Ross Bros. & Montgomery, 90 Broad Street, New York TIMN 440489

HIG1_3:LICi_HTF=" The oustandina event of our vear was the introduction on January 31, 1953 of our new Philip Morris King Size cigarette simultaneously in all domestic markets. Basic improvements were made in our sales, research and manufacturing departments to operate more efficientlv under chan2in(y conditions. Earnings distributed to Common Share Oxvrers in Diridends ................ Earnings retained for futwre operation and risk ........................... Taxes on income ...................................................... Profit-sharing payments to Emploti•ees (bonus) ............................. Pension costs ........................................................ Payments to Employees for salaries, irages and other benefits ............... Sales .............................................................. Excise taxes paid (Revenue Stamps) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leaf inventories ..................................................... Working Capital .................................................... Investment in Philip Morris of ......................................... iras represented bY ... Unsecured loans ................................................ Funded debt ................................................... InterestofPreferredShareOhners.................................. Interest of Common Share O"ners........................ ......... TIMN 440490 4

OF THE YmAR TOTAL l953 PER COMMON SHARE 1952 TOTAL PER COMMON SHARE $ 7,342,462 $ 3.00 $ 7,341,313 $ 3.00 2,771,171 1.13 4,041,516 1.65 10,883,000 4.45 15,720,000 6.42 - - 570,044 0.23 761,851 0.31 686,391 0.28 13,838,757 5.65 12,520,084 5.11 314,894,718 128.63 306,698,324 125.28 157,266,405 64.24 148,812,213 60.79 172,008,022 70.26 198,803,705 81.21 134,996,438 55.14 134,599,804 54.98 218,449,492 89.23 241,051,408 98.46 60,000,000 24.51 85,000,000 34.72 32,000,000 13.07 32,000,000 13.07 31,005,000 12.66 31,385,000 12.82 95,444,492 38.99 , 92,666,408 ' 37.85 TIMN 440491 5

PI_IILII= MORRIE__5 IN 11053 Sales in 1953 fiscal year totaled $315 million compared to $307 million in the preceding period of which sales for export were $11,900,000 as compared to $10,800,000 in the previous year. The dollar increase was affected by the greater excise tax and the increased sales price applicable in the last month of the fiscal year. Our net deduction of taxes on income was $10,883,000 as compared to S 15,720,000 in 1952. Net income was S11,345,200 compared to $12,627,140 in 1952. After payment of $1,232,000 for pre- ferred dividends, we earned $4.13 per common share and paid dividends of $3 per share; $2,771,171 was retained to provide for future needs as compared to $4,041,516 in the preceding fiscal year. We have increased the variety of our products in order to maintain our competitive position and to keep pace with new demands on the part of the smoking public. We gained national recognition for our Dunhill brand during the fiscal year and in January 1953, after months of planning and preparation, we introduced the new Philip Morris King Size overnight throughout the nation, making Philip Morris quality available for the first time to smokers preferring this size. Last year we put into effect changes in our manu- facturing and marketing programs which had been planned to meet the fast-changing conditions brought about by the shifting tastes of the smoking public. 6 TIMN 440492

Leaf inventories were reduced during the year and amounted to $172 million at the year end compared to $199 million at March 31, 1952. Bank loans at the end of our fiscal year were $60 million. Current assets totaled $217 million against $82 million current liabilities, giving net current assets of $135 million. Investment in plant during the year of approximately $1,871,500 and in machinery and equipment of approximately $1,623,500 reflected the far-reaching improvements made to our facilities at Louisville and in Richmond. Due to the rising costs everywhere, our sales, advertising and promotion expenses increased during the year. Selling messages were intensified and surveys indicated that our programs of public entertainment on TV and radio were attracting record audiences. We continued our efforts to reduce expenses through lower manufacturing costs. The benefits derived from the improvement and expansion program discussed in our annual report last year were realized in part during the 1953 fiscal year. Our green leaf stemmery in Louisville commenced operating with gratifying results. Constant improvements in the methods of making and packing cigarettes have brought about savings and improved quality control. During the coming year we expect to enjoy these benefits more fully. The enlarged research activities were helpful. Better control over qualitative and quantitative standards was established and processes improved. During February, price controls for the Tobacco Industry ended and we obtained relief through increased prices to offset in part the increased cost of materials, tobacco and labor. The higher prices were not in force long enough in the fiscal year just closed to give us much benefit but it should have an important influence on our earnings for the current year. Last year the teamwork of all personnel, Management, and Union Representatives made our operations effective in spite of unusual problems. This fine spirit made possible the production, distribution and sales achievements of the past year. With its continuation and our more efficient productive facilities, improved organization, and our multiple brand appeal to the smoking public, we look forward to a successful year ahead. wr~...-.~ President Chairman of the Board May 22, 1953 TIMN 440493

:.:~_W~L Twenty years ago we offered a premium quality cigarette at a popular price when we introduced the Philip Morris Special Blend for the first time. Since then exten- sive changes have taken place in the distribution and marketing of tobacco prod- ucts. At that time the tobacco store and the tobacco counter of drug stores and restaurants and other similar outlets gave us the greatest volume of sales. Today it is estimated that as high as forty per cent of the retail sales of cigarettes is in supermarkets and groceries, while vending machines account for more than fifteen per cent. Both of these types of outlets were minor factors twenty years ago. Another important and significant change that has taken place is shown by the increasing number of brands sharing the total domestic production of American made cigarettes, a change which has paralleled the development of popularity for the 85 mm. or king size products. The table on the facing page points this out: Sales strategy is planned in Vice President Chesley's office prior to the introduction of our Philip Morris King Size. (L.R.) R. S. Larkin, Sales Promotion Director, Ray Jones, Vice President, Harry Chesley, Vice President, Roger Greene, Advertising Manager.

EARNINGS RETAINED_F FUTURE OPERATION &-RlSK . Per Cent of Total Tax-Paid Cigarette Production" EARNINGS RETAINED FOR FUTURE OPERATION & RISK PROFIT SHARlW- EMPLOYEES {BI 1948 1952 Five Largest Standard Size 90.4% ' 74.6% Total King Size 5.7% 18.6% All Other 3.9% ;I 6.8% Total 100.0% i 100.0% *Figtu•e s f rom Printers' lak, issues of Jurunny 7, 1949 cmcl Jannury 9, 1953. Satisfied that a new trend was established in the industry, we prepared orQanizationally and promo- .y tionally to meet the challenge. Last year our new Vice President, Harry W. Chesley. Jr. coordinated sales, advertising and sales promotion campaigns. The management of the sales force, supervising of sales promotion and the direction of advertising continue under the direct supervision of department heads, and the sales field force was reorganized on the basis of seven regional sales manaqers who were Qiven greater responsi- bilities. ~ ~ During, the year we completed the introduction of DUmhill as a king size brand to compete in all national markets. Experience gained when we ap- plied Dunhill promotion to market after market helped set the pattern to introduce Philip Morris Kin~ Size overni~ht in all national markets last January 21. Sales of Dunhill are directed by a sepa- rate organization within our Sales Department. CASkl: DIVIDENDS TO SHARE OWNERS TAM ON INCOME*40- ,;(fEOERAL & STATE).

Like hosts of other happy couples, Mr. and Mrs. Desi Arnaz share Philip Morris in their moments of companionable relaxation. 10 TIMN 440496

We have increased our sales promotion and ad- vertising efforts. Our TV show "I Love Lucy" has had a particularly remarkable public acceptance. When Lucy had her television baby on January 19, approximately 44 million people watched Lucy go to the hospital. And the following week an even larger audience watched our commercials introduc- ing Philip Morris King Size. Recognizing that almost everyone knows about Lucy and loves her, we signed a contract which insured our sole spon- sorship of "I Love Lucy" for two and one-half years. Our advertising messages through magazines, Sunday comics, daily newspapers, radio and televi- sion reach almost all of the.forty-five million homes in America each week, totaling in fiscal 1953 more than three billion selling messages for Philip Morris, Dunhill and Marlboro cigarettes. Our sponsored programs are: Radio-My Little Margie, Sunday, CBS, 8:30 PM; Philip Morris Playhouse, Wednesday, CBS, 9:00 PM; TV - I Love Lucy, Monday, CBS-TV, 9:00 PM; My Little Margie, Thursday, CBS-TV, 10:00 PM; My Hero, Saturday, NBC-TV, 8:00 PM. This schedule indicates original broadcast times for the Eastern time zone. I LOVE LUCY-Lucy and Ricky Ricardo entertain their landlords, Ethel and Fred Mertz (Vivian Vance and William Frawley). MY LITTLE MARGIE-Margie (Gale Storm) saves her boyfriend (Don Hayden) from her irate dad (Charles Farrell). MY HERO-Bob Beanblossont (Robert Cummings), Julie Marshal (Julie Bishop) and the boss, Mr. Thackery (John Litel) are in trouble. (Sponsored by Dunhill King Size cigarettes.) PHILIP MORRIS PLAYHOUSE ON BROADWAY - Stars Louis Calhern, Dorothy McGuire and Richard Carlson accept Philip Morris cartons from Johnny, while announcer Joe King and producer- director Charles Martin wait for the radio drama to go on the air. TIMN 440497

T~r~T~~~T~'ACTTTB T~TCr AZ`TD BI~Z'R IBTiT ~ TOl~T We completed our building program which added substantially to our production facilities. The increase in our overall productive capacity and the maintenance of efficiency in our plants made possible the prompt national distribution of Philip Morris King Size in addition to Dunhill and the Philip Morris standard size. Without the expanded facilities it would hardly have been possible for us to convert a sufficiently large portion of our plant to the manufacture of king size cigarettes so that the factories could keep up with the achievement of the Sales Department in securing almost over- nic,ht national distribution for our new brand. LThis achievement was also aided by our 50 strategically located warehouses from which rapid distribution of fresh cigarettes was made to the jobbers and distributors who serve the 1,300,000 retail sales outlets. In January a curious passer-by wonders about Dunhill X. After the secret conversion of entire manufacturing floors to produce Philip Morris King Size, secret distribution to our strategically located warehouses was accomplished by coding the cases in this wav. From ou- ,+arehouses it was onlv a niatter of hours to supply the market. TIMN 440498 12

The initial conversion of manufactur- ing machines from production of standard-size cigarettes to king size cigarettes was a major accomplishment in a short period of time in Richmond and Louisville. Here Spencer T. Jones, Louisville Factory Manager, reviews the changeover with Harry Gibbs, Lead Making Machine Adjuster. Instructing operator Alta Shain in the operation of one of the packaging machines converted to king size. This packaging assembly for the Philip Morris King Size wraps a red tear tape with the cellophane for easy package opening. Spencer Jones and Charles Hunter, Lead Pack- ing Machine Adjuster, discuss the best means of converting the packaging machine to king size. 'I'IMAN 440499

BENEFITS TO SHARE OWNERS AND GOVERNMENT FROM PHILIP MORRIS SALES MILLIONS OF DOLLARS 45 60 75 90 105 120 135 150 SHAREOWNER BENEFftS' I ~m 165 CASH DlVIDEI/I)S EARNINGS RETAtNEp . GOVERNMENT BENEFITS _TATAL TAXES E(CISE TRXES ON INCOME (FEDERAL & STATE) *AFtE& TAX GARiGY-BACK OF $700,000 . TIMN 440500 BORROWED FUNDS, LEAF INVENTORY AND ADVANCE PAYMENT OF EXCISE TAXES 200 LEAF INVENTOR J FUNDED DEBT AND BANK LOANS ~ ~ ADVANCE PAYMENT OF EXGlSE TAXES F-7-- R 1947 1948 1949 1950 FISCAL YEARS ENDED MARCH 31st 1951

PHILIP MORRIS BALANCE SHEET STATISTICS (000's omitted) Bc,lancc s,1 c-cr.s ca ,y1arrh 31. 1953 1952 l 1951 1950 1949 I 1948 1947 1946 1945 ASSETS Cash & Marketable Securities $ 10,355 $ 11,136 $ 9,115 $ 8,652 I i $ 5,264 $ 4,857 J $ 4, 072 $ 2,486 $ 2.320 Receivables 12,050 11,015 I 11,935 10,810 9,173 7,196 6,391 7,914 10,063 Inventories 193,747 i 221,453 220,839 159,611 132,444 93,913 1 98,812 i 112.745 87,280 Other Current Assets 700 - - - - - ~ - ', 1,867 206 Total Current Assets 216,852 j 243,604 241,889 179,073 146,881 105,966 ' 109,227 125,012 99.869 Net Property Account 21,692 19,916 10,360 8,971 8,301 j i 6,828 , 6,468 4,989 5,110 Prepaid Items & Other Assets 1,761 ~ 1,535 1,337 1,051 1,117 ~ 1 937 1,049 1,391 1,929 - Total Assets 240,305 ; I 265,056 , 253,586 189,095 156,299 ~ I 113,731 116,744 131,392 106,908 Number of Employees 3,841 3,707 3,786 3,420 3,554 3,285 3,405 3,904 4,753 LIABILITIES Notes Payable $ 60,000 $ 85,000 $ 75,000 $ 55,500 1 $ 30,000 ~$ - ;$ 5,500 ~ I$ 44,000 $ 16,000 Federal Taxes - 11,520 ---- 15,414 ~ ~ 17,760 9,415 1 7,811 i 3,431 ; 3,440 I 2,681 I 6,992 Accounts Payable 7,525 2,773 3,020 ' 5,057 6,773 5,753 3,866 i 2,574 5,047 Other Current Liabilities 2,811 5,818 ~ 5,667 I 3,402 2,987 1,797 ~ 1,834 1,369 i 2,255 Total Current Liabilities 81,856 ~ 109,005 j 101,447 73,374 47,571 ; 10,981 1 14,640 ~ 50,624 30•294 Long Term Debt 32,000 ~ 32,000 32,000 32,000 32,000 32,000 32,000 ' 11,500 11,300 - - ~ Reserves for Contingencies, etc. - 237 237 500 - 250 1 Net Worth 126,449 124,051 120,139 83,721 76,491 ! 70,513 69,604 ' 69,268 65.064 Total Liabilities and Capital 240,305 265,056 253,586 189,095 ; 156,299 i 113,731 116,744 131,392 106.908 Net Working Capital 134,996 134,599 140,442 ; 105,699 99,310 94,985 94,587 74,388 69,575 Net Asset Value Applicable to Common Stock-Per Share 38.99 37.85 38.01 32.40 28.04 24.80 23.95 23.68 22.55' *Adjusted--stock split 2 for 1, Julp 10, 1945. + TIMN 440501

COMPARISON OF PHILIP MORRIS OPERATIONS WITH THE AGGREGATE FIGURES OF ITS FOUR MAJOR COMPETITORS (000's omitted) i 1945 i 1944 2,320 1 $ 2,455 10,063 11,017 87,280 206 99,869 li 87,710 -- -r 51I0 1 , 3,471 1,929 '; 3,304 L06,908 , 94,485 4,753 3,881 16,000 $ 5,000 6,992 6,028 5,047 6,952 2,255 1,645 30,294 19,625 11,300 11,500 250 65,064 63,360 106,908 69,575 94,485 68,085 22.56* 21.94* 1952 1951 Philip Morris As % of Sales Competitors As % of Sales Philip Morris As % of Sales Competitors (1) Sales 100% $2,764,751 100% $306,698 100% $2,485,163 fore Taxes Net Income Before 22,228 7.06 231,802 8.38 28,347 9.24 233,202 (2) Taxes 10,883 ,883 3.46 138,634 5.01 ~ 15,720 5.12 141,096 Net Income 11,345 3.60 168 93,168 3.37 I 12,627 4.12 92,106 Total Investment (Bank Loans, Funded Debt, Capital & Surplus) 218,449 69.37 1,832,123 66.27 241,051 78.60 1,751,265 Inventories Total 193,747 6L53 1,693,506 61.25 221,453 72.21 1,614,16C Net Income Before Taxes plus Interest .... as Per Cent of Total Investment ..... $ 25,294 11.58% $ 253,746 13.85% $ 32,102 13.32% $ 252,577 Net Income as Per Cent of Net Worth 8.97 9.18 10.18 Analysis of Total Investment Debentures and Bank Loans $ 92,000 42.12% $ 816,670 44.58% $117,000 48.54% $ 808,053 Preferred Share Owners 31,005 14.19 158,374 8.64 31,385 13.02 158,374 Common Share Owners & Surplus 95,444 43.69 857,079 46.78 92,666 38.44 784,838 (1) Includes Revenue Stamp Taxes (2) Includes Federal and State Taxes on Income and Federal Excess Profits Taxes 1953 ANALYSIS OF PHILIP MORRIS OPERATIONS POSITION AND FINANCIAL for the fisca: yeci: ended March 31 Net Sales $314,895,000 ANALYSIS OF OPERATIONS Net Sales 100% Cost of Sales: Revenue Stamps 49.94 Other 32.54 Gross Operating Profit 17.52 Shipping, Selling, General and Administrative Expense 9.53 Net Operating Profit 7.99 Other Income .08 Total Income 8.07 Income Deductions 1.01 Net Income Before Taxes 7.06 Federal and State Taxes on Income 3.46 Net Income After Taxes 3.60 Net Income as Per Cent of Net Worth 8.97 ANALYSIS OF FINANCIAL POSITION Current Liabilities as Per Cent of Tangible Net Worth 64.73 Total Liabilities as Per Cent of Tangible Net Worth 90.04 Total Debt to Total Investment (including Bank Loans) 42.12 Total Debt to Inventories 47.48 Tangible Net Worth to Total A~,et, 52,62 Long Term Debt as Per Cent of Net AVorl in '2 ( apit;i ) 23-%0 TIMN 440502

Slatt'n~rnt~ ~,t in, RECORD OF PHILIP MORRIS OPERATIONS (000's omitted) ti,<<il ~~tur, t-i, 1953 1952 1951 1950 1949 1948 1947 1946 1945 1944 Net Sales (including Revenue Stamps) $314,895 , $306,698 ; $305,804 $255,752 $228,372 $171,258 $170,906 $178,686 $185,299 $177,901 Cost of Sales (including Revenue Stamps) 259,733 I ; 248,977 i 245,937 208,985 188,656 146,694 148,412 159,799 159,051 152,290 Gross Operating Profit 55,162 i 57,721 59,867 46,767 39,716 24,564 22,494 18,887 26,248 25,611 Shipping, Selling, General & Administrative Expense 29,989 ' 25,320 22,497 19,470 17,499 14,641 12,752 10,953 12,080 12,507 Operating Profit 25,173 ', 32,401 37,370 27,297 22,217 9,923 9,742 7,934 14,168 13,104 Other Income 237 151 99 172 101 : 588' 683(2) 156 267 149 Total Income 25,410 i 32,552 37,469 27,469 22,318 10,511 . 10,425 8,090 14,435 13,253 Income Deductions 3,182 :1 4,205 2,382 2,302 1,658 985 2,174"' 1,476'' 940"' 672 Net Income (Before Taxes) 22,228 ', 28,347 35,087 25,167 , 20,660 9,526 8,251 6,614 13,495 12,581 Federal and State Taxes on Income 10,883`9' 15,720 18,398 9,864 8,162 3,491 3,293 466") 6,692 5,930 Net Income 11,345`e' 12,627 16,689 15,303 12,498 6,035 4,958 6,148"' 6,803 6,651 Cash Dividends Declared (Common) (Preferred) 7,342 1,232 7,341 1,244 6,995 1,253 5,996 789 5,246 818 3,497 836 3,498 863 2,998 817 4,497 866 4,496 844 Net Income Retained in the Businessfe' 2,771 4,042 8,441 8,518 6,434 1,702 597 2,333 1,440 1,311 Per Share Earned on Common Shares Outstanding 4.13 4.65 6.62 7.26 5.84 2.60 2.05 2.67 5.94 5.82 Common Shares 2,448,121 2,448,121 2,331,544 1,998,467 1,998,467 1,998,467 1,998,468 1,998,470 999,235 999,2 35 1 2 3 4 5 Includes $409,890 profit on sales of securities after deduction of $137,000 of Federal income taxes thereon. Including renegotiation recovery of $310,000 in connection with government contracts and net premium of $133,865 received on sale of 25/s9o Debentures. Including prentium of $472,000 paid on retirement of 3% Debentures, and provision of $500,000 for contingencies. 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"1( - Series. Reflects a refund of Federal Excess Profits Taxes of prior years under carn-back provisials of the Inten:al Revenue Code amounting to $1,867,528 and a credit of $300,000 representin, excessive provisions of prior years' taxes. Subject to minor surplus adjustments (except in 1951 when 5~/~ stock diiidend na.i declared). After stock split 2 for 1. Including provision of $250,000 for post-war and other contingencies. Reflects a refiuid of Federal Excess Profrts Tax of prior rear tunder can.r-bacl; prolisions of th(, Imernal Rerenue Code amounting ta 5700,000. TIMN 440503

';)'iKING CAPITAL The sources from which we got our working funds and the uses made of them. Fiscal Year Ending March 31, 1953 Fiscal Year Ending March 31, 1952 Fiscal Year Ending March 31, 1951 Workin`~ Capital at Beginning of Year ............................ $134,599,804 $140,442,262 $105,698,609 /~ i)DITIUNS: Net earninLs for year ............................................ $11,345,200 $12,627,140 $16,689,144 Depreciation of plant and equipment .................... 1,646,989 763,630 414,150 Sale of Capital Stock ............................................ 28,492,956 Total Additions .................................... $12,992,189 $13,390,770 $45,596,250 I)F;I)UCTIONS: C'ash dividends declared ...................................... $ 8,574,029 $ 8,585,624 $ 8,247,679 M-i Cost of Preferred Stock acquired .......................... 373,087 129,254 516,026 Additions to property, plant and equipmcnt.......... ~ 3,495,004 320 238 10 1 802,666 , , , ~ Misccllancous ...................................................... 153,435 198,112 286,226 .P .P C Total DeductlonS .................................. $12 595 555 $19 233 228 852 597 $10 C!1 , , , , , , O Net Rertirctrmn or Addition to Working Capital.... $ 396 634 458 842 $ 5 $ 34 743 653 .P , , , , , U'orkin,_, Capital at ]vlarch 31 .......................................... $134,996,438 $134,599,804 $140,442,262 15

Investment in land, machinery and buildinQs now stands at $28,729,363, and the earnings set aside to provide for the installation of more and efficient machines and methods as they become available and to replace worn out and obsolete equipment now total $7,037,462. The principal financial developments of the year are outlined on Pages 6 and 7 and in the Working Capital table on Page 15. Regular dividends were maintained on the two series of preferred stocks and on the common stock. Leaf inventories were reduced from $199 million to $172 million and bank loans from $85 million to $60 million at March 31, 1953. Cost of doing business increased during the year because of general increases in cost of all media of advertising, in wages and in the costs of most products we must buy. Our net was affected at the year end, however, by a'`tax carry-back" in which some income of prior years taxed under Excess Profits Tax was restored under provisions of the Revenue law, and also by the effect of the price increase made in late February. On February 27 we obtained some relief by increasing the wholesale price of our ciga- rettes after the general ceiling price regulation was lifted. The higher prices will help over- come cost increases in raw materials and investment in leaf tobacco. Very little benefit of the increased price was felt during the fiscal year just ended. This price increase was reflected in a 10 per package average increase at retail, and the average price of a package of Philip Morris cigarettes throughout the nation is now 23~ as compared to 15~ twenty years ago. Of the 8d per package average increase since 1934, 20 is due to Federal excise taxes, 30 on the average goes to various state and local sales taxes, and Y is shared by manufacturer, jobber, dealer and retailer. During the same time period the cost of leaf tobacco alone, a principal element of cigarette costs, nearly tripled. TIMN 440505 16

200 100 75 50 25 0 A ?RICE RISE WAS OVERDUE 18 YEARS-19362 53 200 , . . ~- ~ . . (INDEX NUMBERS 1936 T0 1940=100y ..- ~------- 175 i .:' ~ i i s ~ ~ t i i t 150.- ~ ~ I / ' 125 ! t {I . ,,-I- 0, . % ` i f . 00 75 - - - TOSACCQ` LEAF COST OF OUR CIGARETTES PER THOUSAND (FISCAL YFARS ENDED MARCH 31st-INDIX NUMBERS) -1;-- oUR'GROSS°`13VC4ME FROM SALE OF CIGARETTES PER THOUSAND tFISCfiE: YEAR3. ENDED= MARCH 31st - INDEX NUMBERS) :- OOST QF LIVING -~ CONSUMER PR1GE (NDEX, U. S. DEPT. OF LABOR (FOR MONTH OF'IAARC}f' ONLY) 1936 '37 '38 '39 '40 '41 - '42 '43 '44 '45 '46 '47 48 _ '4' 25 TIMN 440506 17

Walter B. Reeb, Louisville Stemmery Manager, explains how a preliminary blending operation is performed prior to the stemming of newly purchased tobacco leaf. During the tobacco leaf buying season of 1950- 1951 we made extra purchases of the 1950 crop because it was plentiful and of exceptionally fine quality. The 1951 crop was only fair in qual- ity so that we were content to curtail our buying during the buying season. The 1952 crop had only a limited amount of Philip Morris quality leaf and we were fortunate in being under no compulsion to buy heavily of the entire crop. Our leaf inventories at year end, while somewhat lower, were entirely adequate. Our new green leaf stemmery was opened last May and was in operation before the tobacco markets opened in July. During that period we stemmed most of the leaf in storage so that almost all of the present leaf inventory is now in the form of "strips" or stemmed leaf. Nearly 40~~ of our domestic leaf tobacco is now stored in our own leaf storaQe warehouses in Louisville and Richmond. ~ In broadeninc, our imported and domestic leaf departments we created a new subsidiary called the Trade and Commerce Corporation, with a branch office in Syria. to facilitate our purchase of Oriental leaf tobacco. TIMN 440507 is

Edna K. Chavis, laboratory technician, analyzes cigarette smoke in our Richmond laboratory. RE~EARCH AND DEVELOPMENT Our Research Department, expanded last year under Dr. Robert N. DuPuis, is constantly study- ing the nature of tobacco and the character of cigarette smoke and relating these studies to the manufacturing processes. Our research staff includes 21 graduate chem- ists, physicists, biologists and botanists, constantly engaged in pure and applied technical research. Although there are instances where cost savings or improved products have resulted from Research Department operations, we are at the stage of de- velopment where effective research cannot be tied directly to dollars-and-cents results and we do not attempt to do so. We, and the rest of our industry, are in an era where the findings of science will be merged with knowledge gained from 300 years of practical experience in the Tobacco Industry. A new electronic machine packages our English Ovals. With electric eve control this machine scans each cioarette and turns it into proper position with the printing upward before placing the cigarettes in boxes. 1. The boxes are automatically opened for insertion of the cigarettes. 2. Oval cigarettes on the conveyor approaching electric eye turnover. 3. The electric eve mechanism at v.ork. 4. Inspector obsernes the »ork of the electric eye.

MA1~.~AG EMENT AI~T1D BOAR L CQF Z7!B,F,CTGREE~ It is with deepest regret that we report the deaths of two of our associates during the fiscal year just ended. In January, Vice President William C. Foley died. He had served notably since joining the Com- pany in 1919 and he will be missed by his fellow Directors and associates within the Company and his friends throughout the tobacco business. Mr. Willard F. Greenwald died at his home in Febru- ary. Our Director of Research from 1933 to 1948, he had continued with us as a consultant. He was widely known and respected for his original re- search into the field of tobacco and the pharma- cology of smoke. The legacy of clinical knowledge and the library which he assembled will continue to be helpful to us for many years to come. Last November, Vice President Edward W. Din- widdie retired, having reached age 65. With 50 years of experience in the Tobacco Industry, the last 28 years of which were with us, he has made outstanding contributions to our products as Mas- ter Blender and created a fine staff of trained asso- ciates. We are pleased to report also that Mr. Dinwiddie's services are still available to us on a consulting basis. The management structure was strenathened during the year with the addition in June of Harry W. Chesley, Jr. as Vice President to coordinate sales, sales promotion and advertising. In February. Mr. C. T. Ames, our Production Vice President, was elected to the Board of Directors, and Mr. Geor(ye Weissman. Assistant to the President, was made Vice President. ARS OF PAYMENT.5 AND = PROF{Tv}1A' RlNG BDNl1S ~ PENSION C{ISTS 2 EMPLOYEES THER PAYMENTS & BEFtTS TO EM PLOYES u > ~ 4 ~ -4 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 FISCAL YEARS ENDED MARCH 31st 2 TIMN 440509 _

PHILIP MORRI~ TEAM President McComas looks on as Vice President Ames hands a copy of the new employee benefits plan covering seasonal workers to Mr. John Young. President. Local 72 of the Tobacco Workers International Union. At the extreme right is Mr. John O'Hare, International President of the T.W.I.U.. AFL. The Philip Morris organization now includes nearly 4,000 persons. More than one-third have more than ten years' service. Last year salaries, wages and other benefits totaled 513,838,000. Everyone par- ticipates in a plan of Group Life Insurance placed with the Aetna Life Insurance Company and paid for by Philip Morris. Hospitalization and Medical- Surgical Insurance plans are supplied by the Com- pany to all regular full-time members of the organi- zation without cost to them. With the addition of new facilities to stem and process leaf more efficiently by working the tobacco when harvested, it became necessary to enQage some personnel on a seasonal basis. Hitherto, seasonally employed people were unable to have the benefits of group life insurance and retirement. Durincy the vear, R. P. Roper. Director of Per- sonnel, worked out with the Tobacco Workers International Union (AFL) a way to extend these benefits to seasonal personnel for the first time in the Tobacco Industry. Company and Union officials believe this innovation will tend to stabi- lize employment in the green leaf stemmeries from year to year. At the same time the Company ex- tended for two years its contract with the Tobacco Workers Union which represents all plant em- ployees engaged in manufacturing whether full- time or seasonal. All personnel benefit from good lighting, quiet, and an adequate supply of temperate fresh air in working environs planned with special attention to individual efficiency and comfort. In all major Company locations non-profit cafeterias serve \vell- balanced.wholesome meals at lowest possibl.e prices. The Retirement Fund, held in trust bN J. P. Morgan & Co., Inc., now totals SS.6O0.UU(l and provides income for all personnel at retirement. ,yIMN 440510

TRINITY COLLEGE of Hartford, Conn., Philip Morris Share Owner, is one of many educational and relig- ious institutions whose operating expenses are cov- ered in part by the corporate dividends they receive. BREEJOtxivSO:x. Philip Morris Field Sales Manager, with Mrs. Johnson in their New York apartment. His dailv producti\e effort increases the value of his investment in Philip Morris. The Branford College Courtyard of Share Owner YALE USIVERSITY is the scene of a friendly discussion on the merits of planned investment in a free economy. One of the students is from Colombia. South America. Share Ou ner ttSC,,tt t.. ~(ttUtaacetrr. JR. (elhotion piano) appreciate~ hil, son's work at piano lesson,. The v,hole fam- il\ enio%s mu,ic. Mr. Sch%%eickert i< Philip M"ni. I arton Superin!cnclent in LouiS%ille. Hc hL~n. t,) imc.; hic di%idendi to incr„f.c iti• P!:di;, A1- i...,..., TIMN 440511

9iA W a a F ® mop © f •r1 ® © . N tM r a ~ {.~ ~F "'sf"406'„ ' :m Study and research in the Carnegie Library of Share Owner ORERLIN COLLEGE, Ohio, affords the stu- dents a perspective on international problems as well as economics of American life and corporate in- vestment. The Library contains more than 500,000 bound volumes. l 15 The COLORADO COLLEGE campus affords restful mo- ments for its students. Gifts made to the College in the past and invested in Philip Morris and other U.S. com- panies help maintain this institution and, through scholarships, give many stu- dents aid in preparing for the future in a free and democratic America. SIX Of COOPER OR\ITHOL(1GICAL SOCIETS' s nine di- rectors at a regular meeting in the Societ~.'s Los An- geles quarters. They are discussing the subject of a forthcoming issue of The Condor. the Society's jour- nal. publication of tihich Hill be materiah aided bv the income from imestment in Philip ?`lorri,. TIMN 440512

~~~%~~~1'J,ro6. CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors and Share Owners of Philip Morris & Co. Ltd., Incorporated : We have examined the balance sheet of PHILIP MORRIS & CO. LTD., INCORPORATED as of March 31, 1953, and the related state- ments of earnings and surpi:°• for the fiscal year then ended. Our examina- tion was made in accordance with generally accepted auditin(y 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, 1952. In our opinion, the accompanying balance sheet and related state- ments of earninas and surplus present fairly the financial position of Philip Morris & Co. Ltd., Incorporated at March 31, 1953 and 1952 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 27, 1953 AU: I D I2'CR2 5 ' CER= IFICATE TIMN 440513 24

PHILIP MORRIS & CO. LTD., INCORPORATED • IncorporatedinVir;inia ~s '-r -Z%-- r°.,-'~ M= NT UF = ARNSNC'T-CE5 for the fiscal years ended March 31, 1953 and 1952 Net sales Cost of Qoods sold .......................................................................... Cost of shipping goods, selling, advertising and general administration ............................................................................ Operating income ............................................................ Nonoperating income ...................................................................... Interest (including $840,000 on debentures) .................................. Prior service contribution under company's retirement plan............ State income taxes .......................................................................... Provision under incentive bonus plan Cancellation of export contract ........................................................ Earnings for year before provision for federal taxes on income .................................................................... Provision for federal taxes on income (in 1953, less $700,000 refund of federal excess profits taxes for 1952) ............................ Net earnings for year ................. .............. ...... The acconrpanying notes ar•e an integral part of the financial statements. $314,894,718 $306,698,324 259,732,580 248,977,304 29,989,456 25,319,811 289,722,036 274,297,115 25,172,682 32,401,209 237,240 141,506 25,409,922 32,542,715 3,065,823 2,873,634 115,899 115,899 303,000 415,000 570,044 635,998 3,484,722 4,610,575 21,925,200 27,932,140 10,580,000 15,305,000 $ 11,345,200 $ 12,627,140 TIMN 440514 25

AZTDITMD FINANCIAL STATEMENT~'a March 31, 1953 and 1952 Current assets: Demand deposits in banks and cash on hand ...................................... $ 10,355,205 , $ 11,136,313 Accounts receivable, less allowance for discounts and doubtful accounts ................................................................ 12,050,308 11,014,589 Inventories, at average cost (Note 1) ................................................ 193,747,160 j 221,453,395 Excess profits tax refund .................................................................. 700,000 ; - Total current assets .......................................................... 216,852,673 ' 243,604,297 Current liabilities: Notes payable to banks ...................................................................... 60,000,000 85,000,000 Cash dividends payable ...................................................................... 2,142,583 2,146,146 Accounts payable and accrued liabilities .......................................... 8,193,262 6,443,970 Federal taxes on income .................................................................... 11,520,390 15,414,377 Total current liabilities ...................................................... 81,856,235 109,004,493 Net current assets .............................................................. 134,996,438 134,599,804 Property, plant and equipment, at cost (less allowance for depreciation, 1953, $7,037,462; 1952, $5,897,767) ........................ 21,691,901 19,916,142 Investments in and advances to subsidiary companies, at cost .................... 453,758 235,965 Prepaid expenses and deferred charges .................................................... 1,307,395 1,299,497 158,449,492 156,051,408 Deduct, 2s/s % Sinking Fund Debentures, maturing April 1, 1966 (sinking fund payments commence March 31, 1956) ...................................................................... 32,000,000 32,000,000 Net assets .......................................................................... $126,449,492 $124,051,408 Share owners' investment, represented by (Notes 2 and 3): Cumulative preferred stock, par value $100 per share ........................ $ 31,385,000 $ 31,715,600 Common stock, par value $5 per share .............................................. 12,240,605 12,240,605 Paid-in capital in excess of par value of capital stocks ........................ 33,300,490 33,300,209 Earnings reinvested or retained in the business .................................. 49,896,484 47,125,313 126,822,579 124,381,727 Less, Cost of preferred stock held in treasury .................... 373,087 330,319 $126,449,492 $124,051,408 The accompanying notes are an integral part of the financial statements. 26 TIMN 440515

PHILIP MORRIS & CO. LTD., INCORPORATED • IncorporatedinVirginia for the fiscal years ended March 31, 1953 and 1952 Paid-in capital in excess of par value of capital stocks: Balance at beginning of year ...................................................... $33,300,209 $33,304,643 Adjustments due to redemption of preferred stock ...................... 281 4,4341 Balance at end of year .................................................... $33,300,490 $33,300,209 tDeduction. Earnings reinvested or retained in the business: Balance at beginning of year ...................................................... $47,125,313 $43,083,797 Net earnings for year .................................................................. 11,345,200 12,627,140 58,470,513 55,710,937 Deduct, Cash dividends declared: On cumulative preferred stock: 4% Series .................................................................. 738,616 745,116 3.90% Series .............................................................. 492,951 499,195 On common stock ............................................................ 7,342,462 7,341,313 8,574,029 8,585,624 Balance at end of year (Note 3) .................................. $49,896,484 $47,125,313 The acc•ompan.•ing notes are an integral part of the financial starcments. TIMN 440516

STATEM~NTS Inventories comprise: 0 1953 1952 Leaf tobacco $172,008,022 $198,803,705 Manufactured stock 15,564,325 15,392,862 Stock in process, revenue stamps and operating supplies ,174,813 ,256,828 $193,747,160 $221,453,395 ® Information concerning capital shares: Authorized: Preferred, 350,000 shares (all of which have been originally issued and including 36,150 shares which are no longer out- standing and for which no shares may be issued in lieu thereof). Common, 3,000,000 shares. Outstanding (including treasury stock): 1953 1952 Preferred: 4~'c Series 185,854 187,853 3.90% Series 127,996 129,303 Common 2,448,121 2,448,121 In treasury (preferred): 4~c Series 2,100 1,999 3.90% Series 1,700 1,307 The company is required to set aside annually, in sinking funds, amounts sufficient to redeem 1,999 shares of preferred stock, 4% Series, at S 105.50 per share and 1,307 shares of 3.90% Series at $100.75. Shares held in treasury at March 31, 1953 are sufficient to fulfill sinking fund requirements for the ensuing fiscal year. The preferred stock is redeemable at any time, otherwise than through the sinking funds, at $106.50 for 4% Series to February 1, 1955 and $103.75 per share for 3.90% Series to May 1, 1954, and at diminishing amounts thereafter, but not less than $105.50 for 4% Series and $100.75 for 3.90% Series; plus accrued divi- dends. Preferred share owners are entitled to such amounts upon voluntary liquidation of the company or to $100 per share plus accrued divi- dends upon involuntary liquidation. © The terms of issue of the 25/s % Sinking Fund Debentures include certain restric- tions with respect to dividends (other than stock dividends) on the common stock of the com- pany, and to the purchase, redemption or retire- ment of its capital shares. At March 31, 1953, approximately S32,952,000 of the earnings re- tained was free of such restrictions. Under simi- lar restrictions in the terms of issue of the cumu- lative preferred stock, the amount of earnings retained free of such restrictions was in excess of the afore-mentioned $32,952,000. Provision for depreciation of plant and equip- ment charged to costs and expenses aggregated $1,646,989 for the fiscal year 1953 and $953,960 for the fiscal year 1952. ,yIMN 440517 28

PRODUCT~ OF Ti-IE PH22jIP MORR=S COMPANY For more than a century the name Philip Morris has meant the finest in tobacco products. The verv best domestic and imported tobaccos arown are used in Philip Morris products. We a(,~e our tobaccos in the most modern warehouses ... to assure the mellowness, smoothness and fine taste that millions have come to expect in our brands. Expert blending, electronically controlled, follows the aging process, and secret formulas bring out flavor and aroma of these blended tobaccos. The most superior methods known to modern science are used in the manufacturing and packing of Philip Morris products. The best known and most popular of our cigarettes is PHILIP MORRIS, available in both King Size and Reaular. DCNHILL, plain or cork tipped, is a quality smoke backed by a famous name. SPC: D, cork tipped or plain, is a superior, evenly mentholated cigarette. MARLBORO, rich in mildness, is produced in three styles- plain ends, Ivory Tipped, and Beauty Tipped- (red) for women. ENGLISH Ot'ALS, a luxury product of the best in domestic and Oriental leaf, is packed in crush-proof boxes and is sold in the premium price class. PLAYER'S NAVY CUT "Medium" cigarette, a blend of top-grade Virginia Bright, and packed in sliding sleeve-like crush-proof boxes, is also a premium brand. Of our pipe tobaccos, BOND STREET, an aromatic blend of selected tobaccos, is our lar2est seller. REVELATION, a mild blend of five quality tobaccos skillfully combined, is designed to appeal to the discriminating pipe smoker. COUNTRY DOCTOR, HANDSOME DAN, BARKING DOG, and WAKEFIELD MIXTURE are pipe mixtures each varying slightly to appeal to the special taste of a wide range of smokers. LYON'S OWN is a superior mixture of the premium price class. TIMN 440518

Ax-~mLBopo ARETTES TIMN 44 0519 ~ CORK ~. !s '-..... TiPs Junhil C16ARETTE',, l~TI##`.:. , CIGARETTE 1(4~ ftii S

~ THEPERFECT PIPE TOBACCO IaSMtla and'lello~r, mm-. ! F,1CT0RIE ~. 5 ` MAOE iNN IS M U. S. A. oRRiS & S-.~lp `Tn.. INC. glEHp TIMN 440520

Financial World Magazine Bc~T C)F IV'Dl1~TRY VAK'aRD }}»?N»»> «<E«{««< :~{uLi{+ l;:rr;> v. w, ~-hmutrl ~>.qurt ~itatiuu phitip +1TLmis ,~ ~ a. +!'tII..!Ittc. ;farbL-~, #11 al(Ltitlif t1f,}ilt51rir55 forqubii;hinqdunnc i~,52 ih~oE tlu.rifccrn!im.~s[Fi1~hlu.rinnaAmuwL ~cyoRs ~u[..,z. .. ~t.'.6u.s .F4m' L5t Ntlftqv.l.c~JW11fRu.mry aLm¢twyt[. a1. xcl,:uKOmtisY.Na'1 Tnsul.h.an,aham/vwlafGU' ayT,v+inY:4/v)s.mlcc~l ~nioM.~. Wr~ qv¢4: L 1Smo-s.wacanuvc.vyw[u.LP[crdd.,.i~.wYdu? :.TiYn:al.htPaeWnanlcmo J+C•a.vuLialmmumtt(~ r~td.,Nt;a,nf .v~x~uuiuana¢+~o.,auA,ateMU69+ S.vrnvclJ~u:~nuav+~'~M`~[[.1u:nn,Trm.me~elwi,i:.im.' muc.at Edp .:.fea un.Lxx[cn.i:.mnpwy,wt:sh'~cMM1S. u:cT,~N.msanlva"Cac•awfiaaAy!w7n1Vhu1' • .+w Sc n.,nn'rJS+ae4 cr FaRU cv.m. Juuo '952 rou..enywys.:.wwt.'lwr.a:oNdwntl~liN.[. ~ ' For Best Annual Report Cover Design of 5,000 Judged Vice President and Treasurer L. G. Hanson receives from Weston Smith, Vice President of the Financial World, the Bronze Oscar earned by the Philip Morris Annual Report for the sixth successive year, and the Silver Oscar for the Best Original Art Cover Design of 5,000 competing companies. Awarded THE CALL, our employee maga- zine, for outstanding contribution to 1952 non-partisan "Register & Vote" Campaign ,yIMN 440521 AtiERICkV l\STITUTE OF \1 ~`\ tt;FAIENT a - i'/,./~, // ;,,. ,. i.. %.i , i,r. THIS CF.qTIFICATE tIF \L-:F.Nl:NT h.\['F;LLY.\, ! F(10. THl: YEAx ,031

, ;-t-1 2 L: P M O R R I S Sc C O. C.. T D. i. ~ ~ ,'.0t'i%1' .•~ F ~ If.'~(-. Tj I N C O R P O R A T E D TIMN 440522