Tobacco Documents Online

1952 PFfiL4P f!s^P&15 & CO. LiE::., ftvCC>RPOP.ATLD F_xectrtirc OfJice,~: l00 Purti ,lrrnnc. ~'ru)"nrk 17, N. }'. ,fIMN 440526

TEXT Highlights of the Year .................. Review of the 1952 Fiscal Year .. . . . . . . . . . Investment and Taxes ................... Sales and Advertising ... ............. . • Leaf Tobacco ......................... Manufacturing ........................ Export ............................... Research ............................. Distribution, Purchasing and Traffic ....... The Philip Morris Team ................. Future of the Tobacco Industry .. . . . . . . . . . TABLES Highlights of the Year ................... Page 4 6 8 10 13 15 18 19 26 21 23 5 Comparison with Industry ............... Center Philip Morris Operations ................ Center Quarterly Results ...................... Center Audited Statements ..................... 24-29 CHARTS Cash Dividends and Federal Taxes on Income 7 How We Used Our Sales Revenue ......... 9 Leaf Inventory, Borrowed Funds and Sales. . 12 Essential Assets Related to Sales .. . . . . . . . . . 13 How Our Market Has Grown ............. 23 OTHER FEATURES Retail Price of Philip Morris in Typical City. 8 Philip Morris Products ............... Center, 32 Plants and Leaf Storage Warehouses ....... 18 Share Owners' Benefits .................. 30 TIMN 440525

The major portion of our improvement and expansion program was completed during the year with addition to our Louisville facilities raising our one-shift manufacturing capacity there by over 80 per cent. Our leaf storage capacity was increased to accommodate in our own premises the storage of strips produced by our ~reen-leaf stemming unit in Louisville. A new areen-leaf stemmery was completed in Louisville and one in Richmond is nearing completion. Operating economies are expected to result. The reQular $3.00 cash dividend was paid on the common stock. TIMN 440528

occurs while inen and cvoiitezj, rela,r-.over ihe`coffet-,cr!ps-"e worId-j-- TIM11T 440524

G. P. Brauburger O. H. Chalkley W. C. Foley L. G. Hanson W. H. Hatcher Alfred E. Lyon, Chairman and Chief Executive Officer O. Parker McComas, President L. G. Hanson, Vice President and Treasurer C. T. Ames, Jr., Vice President E. W. Dinwiddie, Vice President W. C. Foley, Vice President Alfred E. Lyon O. Parker McComas H. E. Riddell K. H. Rockey W. B. Ryan, Jr. W. H. Hatcher, Vice President G. J. Henn, Vice President Ray Jones, Vice President W. E. Liebetrau, Vice President H. R. Blum, Controller C. H. Kibbee, Secretary and Assistant Treasurer 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 440527

O F T H E Y E A R SALES OF ............................................................................. provided for . . . Revenue stamps ........... ...... ...._....... _....... ........ ...... Tobacco and other costs of manttfacturing and distributing Philip Morris products ... ........... ..... I ....- Interest on borrowed money and other financial costs ......................... ............. . Payments to employees and insurance, hospitalization, pensions and other benefits ...... ................... ....... Income taxes for support of State Governments ... ..... . ......... ......... Federal normal and surtax on income ........ .......................... .......... .......... ..... Federal excess profits tax ................................. .... total Balance ................................................................... ai•ailable for: Payments of cash dividends to share owners preferred ................. ........................................ common ......................................................... Future operation and risk ......... .................... ...... INVESTMENT IN PHILIP MORRIS OF ........... ...... was represented by ... Unsecured loans ....................................... ....... ... Funded debt ..................................... ................. .... Interest of preferred share owners ...................... .. Interest of common share owners .......................... TOTAL PER COMMON SHARE TOTAL , PER COMMON SHARE $306,698,324 $125.28 $305,804,331 $131.16 148,812,213 60.79 147,312,301 63.18 112,394,326 45.91 108,831,875 46.68 3,368,126 1.37 1,855,734 .80 13,776,519 5.63 12,717,276 5.45 415,000 i ; .17 648,000 .28 14,605,000 j 5.96 15,064,000 6.46 700.000 i .29 2,686,000 1.15 294,071,184 , 289,115,186 12,627,140 16,689,145 1,244,311 i .51 1,253,047 I .54 7,341,313 ' 3.00 6,994,632 3.00 ~ 4,041,516 1.65 8,441,466 ; 3.62 241,051,408 98.46 227,139,146 97.42 85,000,000 34.72 75,000,000 32.17 1 32,000,000 13.07 32,000,000 13.72 1 31,385,000 12.82 31,510,101 1 13.51 92,666,408 37.85 88,629,045 1 38.02 TI14N 440529 5

SALES AND ADVERTISING In the field of advertising we have recognized the growing interest in television on the part of the public. Since last October we sponsored the Lucille Ball-Desi Arnaz Show, I Love Lucy, CBS-TV, at 9:00 P.M. on Monday. From an un- known show at that time it has become a first- ranking program. Other sponsored programs in- clude: Against The Storm, ABC Radio, 10:45 A.M., Monday through Friday; Break the Bank, ABC Radio, 11:30 A.M., Tuesday and Thurs- day; The Strange Romance of Evelyn Winters, ABC Radio, 3:45 P.M., Monday through Fri- day; Philip Morris Playhouse on Broadway, CBS Radio, 8:30 P.M., Sunday; the twin programs on WPIX, New York TV Station, with Joe Di- Maggio, Yankee Pre-view and Guest of the Day, which precede and follow each home game of the New York Yankees; Racket Squad, CBS- TV, 10:00 P.M., Thursday. All times given are Eastern Daylight Saving Time. These programs are supplemented by intensive nationwide news- paper coverage. We have endeavored to mold our sales pro- motion, both in advertising and in direct sales work, in keeping with the changing accent of consumer purchases. Our experimental sales promotion activities with the long (85mm.) cigarette, Dunhill, have been restricted to limited market areas in several metropolitan districts. These experiments appear promising but it is yet too early to draw any definite conclusion concerning them. "Lucy" and her husband, Desi Arnaz, receive an award as Board Chairman Alfred E. Lyon tioatches. The studio audience gathers. The accoutrentents of criminals and ineans for their de- tection cover the table in the "Racket Squad" progranv. 10

UNCLE SAM'S STAMP TAX. • TLLI.S 1-YPL( ~AL SCE V'L LS CONT1NL'ED O.V PAGE 12 • HOW WE USED OUR SALES REVENUE (IN PER CENT) reaching proper age. Thus, leaf inventory liqui- dated through manufacture and sale of cigarettes turns into cash. Because of the length of time during which tobacco must be aged, bank loans are used to carry a substantial portion of this inventory. These funds seldom exceed the book value of the tobacco to be converted to cash through sale of the manufactured products within the next year and a half. The sum of our total borrowings -funded debt and bank loans-is in conservative ratio. We do not plan any financing this year. Although there is no valid expectancy of lower taxes in view of the current rate of Govern- ment expenditures and the national debt struc- ture, in our opinion it is unlikely that the Federal excise tax on cigarettes will be raised again with- in the near future. Despite heavy tax burdens, the tobacco in- dustry continues to function soundly. In the last year the Federal Government raised the price of the tax stamp on manufactured cigarettes by 1( per package, an increase of 14%. The tax which this stamp represents, though charged against the ultimate domestic consumer, must be paid in advance by the manufacturer who subsequently collects from the consumer by including the amount of the tax in the sales price. This recent increase raised the portion of our working funds which is continuously advanced to the Govern- ment without interest to about $14,000,000. ~ 1.3 1952 VF1Ci!!!!!2 - --. $ 37.0 ~ 4.2 1951 ~ 3.9 ~t ----3.3 1950 1949 1948 ~ ---- 2.7 .6 36.1 ``4.5 ., -..-- 3.fi _ ~2.a ~ -.7 5 ~ 36.6 ~ 4.4 ~ GouernmenfiRevenue Stamps r Government (State & Federal) Taxes:on lncome: ~Iarnings Retained for Business Needs- ~ Stockholders (Gash~ Dividends) ~ fnterest (and f?ther Financial Costs), Employees Tobacco, Manufacturing, Distribution Costs TIMN 440533

I TIMN 440540

R.` E V f E W O F T t~ E 1952 `~' 1 5 C: A L~ r Y E. A R The Company's large-scale expansion and modernization plans which we reported last year are near scheduled completion. As a result of this expansion, our on::-shift manufacturing ca- pacity will be increased by approximately 40%, making it possible to eliminate the extra night shifts. Our sales volume from prior years was main- tained. Sales in many areas abroad were still restricted by lack of dollars. Export sales of Philip Morris products, including sales to United States Forces, were increased 35 %. We promoted Dunhill, our long cigarette, in several experimental cities during the fiscal year just ended. This product was repackaged in 1951 and the results of its promotion so far have been encouraging. Additional markets may be opened in the current year. Higher excise taxes after November 1, 1951, and the price increase of July 1950, in effect for the full twelve months of the fiscal year, ac- counted for a small increase in net sales. Our cost of goods sold, augmented by a larger outlay for revenue stamps, increased, however, so that with other increased costs, net income after Federal and State income taxes was $4,062,005 lower than in the previous year. The added excise tax of 1 C per package legis- lated in November 1951 brought the amount of Federal tax stamps per package to 8~. These excise taxes collected from the industry were covered by the increased price permitted, but the O.P.S. allowed no further increase. The financial condition of the Company con- tinues strong. Our capital and surplus at $124,- 051,408 offset our complete investment in plant and equipment as well as almost half of our investment in current inventories with the bal- ance covered by debentures and current loans. Current assets were $243,604,297 against current liabilities of $109,004,493, leavinE, working capital of $134,599,804. Our invest- ment in leaf tobacco is $198,803,705. Bank loans of $85,000,000 plus long-term funded debt of $32,000,000 amount to 58.85% of tobacco inventories. After paying the regular dividends on the 4% Series and 3.90% Series of Cumulative Pre- ferred Stock, and our regular dividend of $3.00 per share on the Common Stock, we retained $4,041,516 from the year's earnings, an amount equal to 42% of our increase in fixed assets. Of the funds needed for our program of ex- pansion and modernization, approximately $11,150,000 has been spent since the inception of the program in July 1950. At Louisville, $9,550,000 has been spent on the new green- leaf stemmery, 34 warehouses, and expanded manufacturing facilities. Approximately $950,- 000 remains to be spent to complete the pro- gram at Louisville. Our new factory addition and green-leaf stemmery at Louisville are in operation and most of our leaf tobacco there is already stored in our modern warehouses. In Richmond, approximately $1,600,000 has been spent for the new green-leaf stemmery and ware- houses to be completed about August 1952. Approximately $800,000 more will be spent there to complete the work. The completion of this program brings our productive capacity in line with the cumulative sales gains of recent years and gives us money- saving opportunities in the handling of green leaf not available to us in the smaller volume period of our early years. At the same time it makes possible better working conditions for our employees as the night shift is eliminated. At the Annual Meetincy last July, share owners approved a new formula for computing the ac- crual of the Incentive Compensation Fund. The distribution of such fund is subject, however, to the rules and reQulations of the Waae and Salarv Stabilization Boards. ~ TIllZIN 440530 6