<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8940
Philip Morris Companies Inc.
________________________________________________________________________________
(Exact name of registrant as specified in its charter)
Virginia 13-3260245
________________________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
120 Park Avenue, New York, New York 10017
________________________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 880-5000
______________________________
________________________________________________________________________________
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
________ ______
At October 31, 1994, there were 859,394,687 shares outstanding of the
registrant's common stock, par value $1 per share.
<PAGE>
PHILIP MORRIS COMPANIES INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
Condensed Consolidated Balance Sheets as at
September 30, 1994 and December 31, 1993 3 - 4
Condensed Consolidated Statements of Earnings for the
Nine Months Ended September 30, 1994 and 1993 5
Three Months Ended September 30, 1994 and 1993 6
Condensed Consolidated Statements of Stockholders'
Equity for the Year Ended December 31, 1993
and the Nine Months Ended September 30, 1994 7
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1994 and 1993 8 - 9
Notes to Condensed Consolidated Financial Statements 10 - 14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 15 - 24
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. 25
Item 6. Exhibits and Reports on Form 8-K. 25
Signature 26
</TABLE>
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Philip Morris Companies Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in millions of dollars)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
<S> <C> <C>
ASSETS
CONSUMER PRODUCTS
Cash and cash equivalents $ 354 $ 182
Receivables, net 4,852 3,982
Inventories:
Leaf tobacco 2,692 3,030
Other raw materials 2,107 1,695
Finished product 2,909 2,633
------- -------
7,708 7,358
Other current assets 1,326 1,286
------- -------
Total current assets 14,240 12,808
Property, plant and equipment, at cost 18,017 16,930
Less accumulated depreciation 7,152 6,467
------- -------
10,865 10,463
Goodwill and other intangible assets
(less accumulated amortization of
$3,209 and $2,727) 19,909 19,746
Other assets 2,636 2,529
------- -------
Total consumer products assets 47,650 45,546
FINANCIAL SERVICES AND REAL ESTATE
Finance assets, net 4,516 4,869
Real estate held for development and sale 403 489
Other assets 313 301
------- -------
Total financial services and
real estate assets 5,232 5,659
------- -------
TOTAL ASSETS $52,882 $51,205
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
Continued
-3-
<PAGE>
Philip Morris Companies Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (continued)
(in millions of dollars)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
<S> <C> <C>
LIABILITIES
CONSUMER PRODUCTS
Short-term borrowings $ 125 $ 268
Current portion of long-term debt 757 1,738
Accounts payable 2,719 3,137
Accrued taxes, except income taxes 1,263 860
Accrued marketing 2,291 1,619
Other accrued liabilities 3,280 3,492
Income taxes 1,872 1,853
Dividends payable 717 572
------- -------
Total current liabilities 13,024 13,539
Long-term debt 14,850 14,358
Deferred income taxes 495 361
Accrued postretirement health care costs 2,105 2,031
Other liabilities 4,841 4,622
------- -------
Total consumer products liabilities 35,315 34,911
FINANCIAL SERVICES AND REAL ESTATE
Short-term borrowings 881 929
Long-term debt 707 863
Deferred income taxes 2,899 2,706
Other liabilities 141 169
------- -------
Total financial services and
real estate liabilities 4,628 4,667
------- -------
Total liabilities 39,943 39,578
Contingencies (Note 2)
STOCKHOLDERS' EQUITY
Common stock, par value $1.00 per share
(935,320,439 shares issued) 935 935
Earnings reinvested in the business 17,175 15,718
Currency translation adjustments (71) (711)
------- -------
18,039 15,942
Less cost of treasury stock
(74,135,297 and 58,229,749 shares) 5,100 4,315
------- -------
Total stockholders' equity 12,939 11,627
------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $52,882 $51,205
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE>
Philip Morris Companies Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(in millions of dollars, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
-------------------------
1994 1993
------- -------
<S> <C> <C>
Operating revenues $48,624 $46,187
Cost of sales 20,944 20,167
Excise taxes on products 8,692 7,882
------- -------
Gross profit 18,988 18,138
Marketing, administration and research costs 11,274 11,088
Amortization of goodwill 433 419
------- -------
Operating income 7,281 6,631
Interest and other debt expense, net 941 1,068
------- -------
Earnings before income taxes and cumulative
effect of accounting change 6,340 5,563
Provision for income taxes 2,707 2,334
------- -------
Earnings before cumulative effect of
accounting change 3,633 3,229
Cumulative effect of change in method of
accounting for postemployment benefits
(net of income tax benefit of $297 million) (477)
------- -------
Net earnings $ 3,633 $ 2,752
======= =======
Weighted average number of shares 871 879
======= =======
Per share data:
Earnings before cumulative effect of
accounting change $ 4.17 $ 3.68
Cumulative effect of accounting change (.54)
------- -------
Net earnings $ 4.17 $ 3.14
======= =======
Dividends declared $ 2.205 $ 1.95
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
-5-
<PAGE>
Philip Morris Companies Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(in millions of dollars, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
September 30,
--------------------------
1994 1993
------- -------
<S> <C> <C>
Operating revenues $16,710 $15,209
Cost of sales 7,094 6,658
Excise taxes on products 3,037 2,625
------- -------
Gross profit 6,579 5,926
Marketing, administration and research costs 3,975 3,734
Amortization of goodwill 147 138
------- -------
Operating income 2,457 2,054
Interest and other debt expense, net 310 343
------- -------
Earnings before income taxes 2,147 1,711
Provision for income taxes 917 744
------- -------
Net earnings $ 1,230 $ 967
======= =======
Weighted average number of shares 865 877
======= =======
Per share data:
Net earnings $ 1.42 $ 1.11
======= =======
Dividends declared $ .825 $ .65
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
-6-
<PAGE>
Philip Morris Companies Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity
for the Year Ended December 31, 1993 and
the Nine Months Ended September 30, 1994
(in millions of dollars, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Earnings Total
Reinvested Currency Cost of Stock-
Common in the Translation Treasury holders'
Stock Business Adjustments Stock Equity
------ ---------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1993 $ 935 $14,867 $ (34) $(3,205) $12,563
Net earnings 3,091 3,091
Exercise of stock options
and issuance of other stock
awards (51) 108 57
Cash dividends declared
$2.60 per share (2,280) (2,280)
Currency translation adjustments (677) (677)
Stock purchased (1,218) (1,218)
Net unrealized appreciation
on securities 91 91
------ ------- ----- ------- -------
Balances, December 31, 1993 935 15,718 (711) (4,315) 11,627
Net earnings 3,633 3,633
Exercise of stock options
and issuance of other stock
awards (217) 286 69
Cash dividends declared
$2.205 per share (1,919) (1,919)
Currency translation adjustments 640 640
Stock purchased (1,071) (1,071)
Decrease in unrealized
appreciation on securities (40) (40)
------ ------- ----- ------- -------
Balances, September 30, 1994 $ 935 $17,175 $ (71) $(5,100) $12,939
====== ======= ===== ======= =======
</TABLE>
See notes to condensed consolidated financial statements.
-7-
<PAGE>
Philip Morris Companies Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in millions of dollars)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
-------------------------
1994 1993
------- -------
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES
Net earnings - Consumer products $ 3,531 $ 2,678
- Financial services and real estate 102 74
------- -------
Net earnings 3,633 2,752
Adjustments to reconcile net earnings to
operating cash flows:
CONSUMER PRODUCTS
Cumulative effect of accounting change 774
Depreciation and amortization 1,243 1,197
Deferred income tax provision 151 (119)
Gains on sales of businesses (5)
Cash effects of changes, net of the effects
from acquired and divested companies:
Receivables, net (721) (471)
Inventories (80) 92
Accounts payable (490) 70
Income taxes 21 60
Other working capital items 382 (252)
Other 237 236
FINANCIAL SERVICES AND REAL ESTATE
Deferred income tax provision 218 332
(Increase) decrease in real estate receivables (45) 60
Decrease (increase) in real estate held for
development and sale 85 (26)
Other (70) (67)
------- -------
Net cash provided by operating activities
before interest payment on zero coupon bonds 4,564 4,633
Interest payment on zero coupon bonds - financial
services and real estate (156)
------- -------
Net cash provided by operating activities 4,408 4,633
------- -------
CASH USED IN INVESTING ACTIVITIES
CONSUMER PRODUCTS
Capital expenditures (1,000) (1,124)
Purchases of businesses, net of acquired cash (153) (2,628)
Proceeds from sales of businesses 100 55
Other (1) (8)
FINANCIAL SERVICES AND REAL ESTATE
Investments in finance assets (418) (513)
Proceeds from finance assets 804 572
------- -------
Net cash used in investing activities $ (668) $(3,646)
------- -------
</TABLE>
See notes to condensed consolidated financial statements.
Continued
-8-
<PAGE>
Philip Morris Companies Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (continued)
(in millions of dollars)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
-------------------------
1994 1993
-------- --------
<S> <C> <C>
CASH USED IN FINANCING ACTIVITIES
CONSUMER PRODUCTS
Net issuance of short-term borrowings $ 538 $ 2,201
Long-term debt proceeds 77 1,000
Long-term debt repaid (1,399) (1,656)
FINANCIAL SERVICES AND REAL ESTATE
Net (repayment) issuance of short-term borrowings (48) 75
Long-term debt repaid (44) (290)
Purchase of treasury stock (1,009) (1,218)
Dividends paid (1,774) (1,723)
Issuance of shares 40 28
Other (5) (37)
------- -------
Net cash used in financing activities (3,624) (1,620)
Effect of exchange rate changes on cash and
cash equivalents 56 (33)
------- -------
Cash and cash equivalents:
Increase (decrease) during period 172 (666)
Balance at beginning of period 182 1,021
------- -------
Balance at end of period $ 354 $ 355
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
-9-
<PAGE>
Philip Morris Companies Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Accounting Policies:
_____________________________
The interim condensed consolidated financial statements of Philip Morris
Companies Inc. (the "Company") are unaudited. It is the opinion of the
Company's management that all adjustments necessary for a fair statement of the
interim results presented have been reflected therein. All such adjustments
were of a normal recurring nature. Operating revenues and net earnings for any
interim period are not necessarily indicative of results that may be expected
for the entire year. See Management's Discussion and Analysis on page 15.
These statements should be read in conjunction with the consolidated
financial statements and related notes which are incorporated by reference in
the Company's annual report to stockholders for the year ended December 31,
1993.
Balance sheet accounts are segregated by two broad types of business.
Consumer products assets and liabilities are classified as either current or
non-current, whereas financial services and real estate assets and liabilities
are unclassified, in accordance with respective industry practices.
Note 2. Contingencies:
_______________________
There is litigation pending against the leading United States cigarette
manufacturers alleging injury resulting from cigarette smoking or exposure to
cigarette smoking. In this litigation, plaintiffs seek compensatory and, in
some cases, punitive damages. The Company and Philip Morris Incorporated ("PM
Inc."), a wholly-owned subsidiary of the Company, are defendants in some of
these cases.
In certain of these cases, individuals seek recovery for personal injuries
allegedly caused by cigarette smoking. Among the defenses raised by defendants
to certain of this litigation is preemption by the Federal Cigarette Labeling
and Advertising Act, as amended (the "Act"). On June 24, 1992, the United
States Supreme Court held that the Act, as enacted in 1965, does not preempt
common law damage claims but that the Act, as amended in 1969, preempts claims
arising after 1969 against cigarette manufacturers "based on failure to warn and
the neutralization of federally mandated warnings to the extent that those
claims rely on omissions or inclusions in advertising or promotions." The Court
also held that the 1969 Act does not preempt claims based on express warranty,
fraudulent misrepresentation or conspiracy. The Court also held that claims for
fraudulent concealment were preempted except "insofar as those claims relied on
a duty to disclose...facts through channels of communication other than
advertising or promotion." (The Court did not consider whether such common law
damage claims were valid under state law.) The Court's decision was announced
by a plurality opinion. The effect of the decision on pending and future cases
will be the subject of further proceedings in the lower federal and state
courts. Additional similar litigation could be encouraged if legislative
proposals to eliminate the federal preemption defense, pending in Congress since
1991, were enacted. It is not possible to predict whether any such legislation
will be enacted.
Certain developments in smoking and health litigation during 1994 are
summarized below.
Continued
-10-
<PAGE>
Philip Morris Companies Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
In March 1994, a Florida state appellate court reversed a lower court ruling
and reinstated plaintiffs' class action allegations in a purported class action
against the leading United States cigarette manufacturers, in which certain
flight attendants, claiming to represent a class of 60,000 individuals, alleged
personal injury caused by exposure to environmental tobacco smoke ("ETS") aboard
aircraft. The appellate court ordered the trial court to hold further hearings
on the class action allegations. The defendants filed a request for review of
this ruling by the full panel of the appellate court. The request was denied.
In October 1994, defendants asked the Florida Supreme Court to review the March
appellate court decision. Concurrently, plaintiffs have served notice of a
hearing in the trial court for late November 1994 attempting to secure class
certification.
In May 1994, an action was filed in a Florida state court against the
leading United States tobacco manufacturers and others by plaintiffs alleging
injury and purporting to represent a class of certain smokers, certain former
smokers and their heirs. Plaintiffs cited the Florida appellate reversal
discussed above in support of their allegations of class action status.
Subsequently, the Company was voluntarily dismissed from this action, which
otherwise continues against the tobacco manufacturers, including PM Inc. In
October 1994, the trial court granted plaintiffs' motion for class
certification. The class, as certified, comprises "all United States citizens
and residents and their survivors who have...suffered, presently suffer, or who
have died from diseases and medical conditions caused by their addiction to
cigarettes that contain nicotine." Defendants, including PM Inc., will file a
notice of appeal in the Florida Third District Court of Appeals.
In May 1994, the State of Florida enacted a statute which purports to
abolish affirmative defenses in actions brought by the state seeking
reimbursement of Medicaid costs. The statute purports in such actions to adopt
a market share liability theory, to permit the introduction of statistical
evidence to prove causation, and to allow the state not to identify the
individual Medicaid recipients who received the benefits at issue in such
action. In June 1994, PM Inc. and others filed suit in Florida state court
challenging the constitutionality of the statute.
In March 1994, an action was filed in the United States District Court for
the Eastern District of Louisiana against the leading United States cigarette
manufacturers and others, including the Company, seeking certification of a
class action on behalf of all United States residents who allege that they are
addicted, or are the legal survivors of persons who were addicted, to tobacco
products. Plaintiffs allege that the cigarette manufacturers manipulated the
levels of nicotine in their tobacco products to make such products addictive.
In April 1994, a motion for intervention was filed by plaintiffs who have never
smoked but claim injury, on behalf of a purported class, from their exposure to
ETS resulting from the alleged addiction of smokers to tobacco products. This
motion was denied in June 1994. Plaintiffs' motion for class certification is
scheduled for hearing in December 1994.
Continued
-11-
<PAGE>
Philip Morris Companies Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
In March 1994, two cases were filed in the United States District Court for
the Southern District of California against the leading United States cigarette
manufacturers and others, including the Company, on behalf of a purported class
of persons claiming to be addicted to cigarettes and who have been prescribed
treatment through the nicotine transdermal system (known as the "nicotine
patch"). Plaintiffs asserted violations of the Racketeer Influenced Corrupt
Organizations Act ("RICO") and claimed unspecified actual and treble damages.
In April 1994, the two cases, which are virtually identical, were combined in a
single amended complaint and plaintiffs' counsel agreed to dismiss the separate
second-filed case. In July 1994, defendants filed a motion to dismiss the
complaint on the grounds that the complaint fails to state a claim.
Subsequently, the Company was dismissed from this action by stipulation of the
parties; the action continued against the tobacco manufacturers, including PM
Inc. In September 1994, the United States District Court granted defendants'
motion to dismiss the complaint with prejudice. Plaintiffs have filed a notice
of appeal.
In June 1994, a case was filed in the United States District Court for the
Southern District of California against the leading United States cigarette
manufacturers and others, including the Company, on behalf of a purported class
of persons claiming to be injured as a result of an alleged addiction to
cigarettes or by the alleged exposure to "second-hand" smoke. Plaintiff asserts
causes of action for fraud and deceit, negligent misrepresentation, violation of
consumer protection statutes, breach of express warranty, breach of implied
warranty, intentional infliction of emotional distress, negligence, strict
liability, and nuisance, and also seeks injunctive and declaratory relief.
In March 1994, an action was filed in an Alabama state court against the
three leading United States cigarette manufacturers, including PM Inc.
Plaintiff, claiming to represent all smokers who have smoked or are smoking
cigarettes manufactured and sold by defendants in the state of Alabama, seeks
compensatory and punitive damages not to exceed $48,500 per each class member as
well as injunctive relief arising from defendants' alleged failure to disclose
additives used in their cigarettes. In April 1994, defendants removed the case
to the United States District Court for the Northern District of Alabama. The
plaintiff subsequently filed a motion to remand to an Alabama state court. The
motion to remand has not been ruled upon.
In May 1994, an action was filed in Mississippi state court against the
leading United States cigarette manufacturers and others, including the Company,
by the Attorney General of Mississippi seeking reimbursement of Medicaid and
other expenditures by the State of Mississippi claimed to have been made to
treat smoking-related diseases. Plaintiff also seeks an injunction barring
defendants from selling or encouraging the sale of cigarettes to minors. In
June 1994, defendants removed the case to the United States District Court for
the Southern District of Mississippi. In that same month, plaintiff moved to
remand the case back to state court. Plaintiff's motion was granted on August
17, 1994 and the case remanded to state Chancery Court. In September 1994, the
plaintiff moved to strike defendants' challenges to the sufficiency of the
complaint and the subject matter jurisdiction of the Chancery Court. Also in
September 1994, defendants moved to transfer the case from the Chancery Court to
the Circuit Court. In October 1994, defendants moved for judgment on the
pleadings. All three motions are presently pending.
Continued
-12-
<PAGE>
Philip Morris Companies Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
In August 1994, an action was filed in Minnesota state court against the
leading United States cigarette manufacturers and others, including the Company,
by the Attorney General of Minnesota and Blue Cross and Blue Shield of Minnesota
seeking reimbursement of Medicaid and other expenditures by the plaintiffs
claimed to have been made to treat smoking-related diseases. Plaintiffs assert
causes of action of negligent performance of a voluntary undertaking, violation
of Minnesota antitrust laws, violation of consumer protection statutes,
restitution, and conspiracy. Various motions are pending.
In September 1994, an action was filed in West Virginia state court against
the leading United States cigarette manufacturers and others, including the
Company, by the Attorney General of West Virginia seeking reimbursement of
Medicaid and other expenditures by the State of West Virginia claimed to have
been made to treat smoking-related diseases. Plaintiff asserts causes of action
for restitution, public nuisance, negligent performance of a voluntary
undertaking, fraud, conspiracy and concert of action, aiding and abetting,
violation of consumer protection statutes, and violation of the West Virginia
Antitrust Act. Plaintiff also seeks an injunction barring defendants from
selling or encouraging the sale of cigarettes to minors.
The Commonwealth of Massachusetts has enacted legislation specifically
authorizing lawsuits similar to that described in the preceding paragraphs.
In April 1993, the Company and several of its officers were named as
defendants in the first of a number of purported shareholder class actions which
have been consolidated in the United States District Court for the Southern
District of New York. These lawsuits allege that the Company violated federal
securities laws by making false and misleading statements concerning the effects
of discount cigarettes on PM Inc.'s premium tobacco business prior to April 2,
1993, the date upon which PM Inc. announced revisions in its marketing and
pricing strategies for its premium and discount brands.
In April 1994, the Company, PM Inc. and certain officers and directors were
named as defendants in complaints filed as purported class actions in the United
States District Courts in New York, one in the Eastern District and two in the
Southern District. In the Eastern District, plaintiffs allege that defendants
violated the federal securities laws by maintaining artificially high levels of
profitability through an inventory management practice pursuant to which
defendants allegedly shipped more inventory to customers than was necessary to
satisfy market demand. In the two cases in the Southern District described
above, and in an additional purported class action filed in September in the
Southern District against the Company and certain of its directors, plaintiffs
assert that defendants violated federal securities laws with statements and
omissions regarding the allegedly addictive qualities of cigarettes. In each
case, plaintiffs claim to have been misled by defendants' knowing and
intentional failure to disclose material information.
Continued
-13-
<PAGE>
Philip Morris Companies Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
The Company and PM Inc. believe, and have been so advised by counsel
handling the respective cases, that each has a number of valid defenses to all
pending litigation. All cases are, and will continue to be, vigorously
defended. Litigation is subject to many uncertainties, and it is possible that
some of these actions could be decided unfavorably. An unfavorable outcome of a
pending smoking and health case could encourage the commencement of additional
similar litigation. Recently, there have been a number of restrictive
regulatory, adverse political and other developments concerning cigarette
smoking and the tobacco industry, including the commencement of the purported
class actions referred to above. These developments generally receive
widespread media attention. The Company is not able to evaluate the effect of
these developing matters on pending litigation and the possible commencement of
additional litigation.
Management is unable to make a meaningful estimate of the amount or range of
loss that could result from an unfavorable outcome of all pending litigation.
It is possible that the Company's results of operations or cash flows in a
particular quarterly or annual period or its financial position could be
materially affected by an ultimate unfavorable outcome of certain pending
litigation. Management believes, however, that the ultimate outcome of all
pending litigation should not have a material adverse effect on the Company's
financial position.
In March 1994, the Company and PM Inc. filed an action against American
Broadcasting Companies, Inc. and others alleging injury caused by false and
defamatory statements made by defendants on various nationally televised news
programs. Among the statements giving rise to the action is defendants' claim
that tobacco companies, including PM Inc., artificially "spike" and "fortify"
their cigarettes sold in the United States with additional nicotine. The
Company and PM Inc. seek compensatory and punitive damages totaling $10 billion.
Litigation is subject to many uncertainties and the Company and PM Inc. are
unable to predict the outcome of this matter. Pretrial discovery continues.
-14-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
________________________________________________________________________
Operating Results
_________________
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
-----------------------------------------
Operating Revenues Operating Income
------------------ -----------------
(in millions)
1994 1993 1994 1993
------- ------- ------ ------
<S> <C> <C> <C> <C>
Tobacco $21,820 $19,965 $4,769 $4,249
Food 23,082 22,712 2,716 2,609
Beer 3,372 3,255 368 326
Financial services
and real estate 350 255 160 161
Amortization of goodwill (433) (419)
Unallocated corporate
expenses (299) (295)
------- ------- ------ ------
Total $48,624 $46,187 $7,281 $6,631
======= ======= ====== ======
<CAPTION>
For the Three Months Ended September 30,
-----------------------------------------
Operating Revenues Operating Income
------------------ -----------------
(in millions)
1994 1993 1994 1993
------- ------- ------ ------
<S> <C> <C> <C> <C>
Tobacco $ 7,677 $ 6,551 $1,663 $1,294
Food 7,793 7,466 887 821
Beer 1,140 1,111 111 94
Financial services
and real estate 100 81 48 68
Amortization of goodwill (147) (138)
Unallocated corporate
expenses (105) (85)
------- ------- ------ ------
Total $16,710 $15,209 $2,457 $2,054
======= ======= ====== ======
</TABLE>
Operating revenues of $48.6 billion for the first nine months of 1994
increased $2.4 billion (5.3%) and operating income increased $650 million (9.8%)
over the comparable 1993 period. Operating revenues of $16.7 billion for the
third quarter of 1994 increased $1.5 billion (9.9%) and operating income
increased $403 million (19.6%) over the comparable 1993 period. In the third
quarter of 1994, operating income in all consumer product business segments
increased over the comparable 1993 period.
-15-
<PAGE>
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 112, "Employers' Accounting for Postemployment
Benefits." The cumulative effect at January 1, 1993 of adopting SFAS No. 112
reduced 1993 net earnings by $477 million ($.54 per share), net of $297 million
of income tax benefits. Adoption of SFAS No. 112 did not materially reduce the
first nine months of 1993 earnings before cumulative effect of accounting
change.
Operating Results by Business Segment
_____________________________________
Tobacco
_______
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
-----------------------------------------
Operating Revenues Operating Income
------------------ -----------------
(in millions)
1994 1993 1994 1993
------- ------- ------ ------
<S> <C> <C> <C> <C>
Domestic tobacco $ 8,327 $ 7,755 $2,490 $2,320
International tobacco 13,493 12,210 2,279 1,929
------- ------- ------ ------
Total $21,820 $19,965 $4,769 $4,249
======= ======= ====== ======
</TABLE>
For several years, the tobacco industry, including PM Inc., has faced a
number of issues which have affected volume, operating revenues and operating
income. In the first nine months of 1994 and subsequently, these concerns
proliferated and new issues emerged. These included proposed federal regulatory
controls, actual and proposed excise tax increases, governmental and private
restrictions on smoking, new and proposed restrictions on tobacco manufacturing,
marketing, advertising and sales, increased assertions of adverse health effects
associated with both smoking and exposure to tobacco smoke (and legislation or
other governmental action seeking to assess the industry with liability
therefor) and the diminishing social acceptance of smoking. See Note 2 to
Condensed Consolidated Financial Statements.
Currently, the federal excise tax on cigarettes is $12 per thousand ($.24 per
pack). In the first nine months of this year, the legislative health care
debate produced numerous proposals for increasing the federal excise tax on
tobacco, ranging from increases of $1.75 per pack down to $.45 per pack.
Legislation in the Senate and in the House of Representatives contained
provisions which were identical and which, if enacted, would have resulted in an
increase of $.45 per pack, to be phased in over a five year period commencing
August 1, 1995. Congress adjourned without taking action on these proposals.
It is anticipated that higher excise taxes, if implemented, could result in
volume declines for PM Inc. and the cigarette industry and might cause shifts
between the premium and discount segments.
Legislation or other governmental action is proposed periodically that not
only would increase excise taxes but also would curtail further the
advertisement and use of tobacco products. During the first nine months of
1994, members of Congress and the Administration proposed measures which, if
adopted, would ban or severely restrict smoking in workplaces and in buildings
permitting public access, require substantial additional health warning and
product content information on cigarette packages and in advertising, eliminate
the tax deductibility of a portion of the cost of tobacco advertising and
authorize the United States Food and Drug Administration to regulate tobacco as
an addictive drug.
-16-
<PAGE>
It is not possible to determine what, if any, governmental legislation or
regulations will be adopted relating to cigarettes or to smoking. However, any
or all of the foregoing, if implemented, could have an adverse impact on PM
Inc.'s volume, operating revenues and operating income, the amounts of which
cannot be determined.
DOMESTIC TOBACCO. During the first nine months of 1994, domestic cigarette
industry volume (based on shipments) shifted from the discount segment to the
premium segment. The premium and discount segments accounted for approximately
67% and 33%, respectively, of the domestic cigarette industry in the first nine
months of 1994, compared with 62% and 38%, respectively, in the comparable
period of 1993. Actions taken by PM Inc. in 1993 in response to the highly
price sensitive market environment are discussed below.
PM Inc.'s domestic volume (based on shipments) was 164.7 billion units for
the first nine months of 1994, an increase of 14.5% over the comparable 1993
period, reflecting the success of PM Inc.'s new pricing strategy and its
marketing and promotional programs. This compared with an industry increase of
8.2%. PM Inc.'s market share for the first nine months of 1994 was 44.6%, an
increase of 2.5 share points from the comparable 1993 period. In the premium
segment, volume in PM Inc.'s brands increased 25.8% in the first nine months of
1994, compared with a 16.9% increase for the industry, resulting in a category
share gain of 3.8 share points to 53.3%. The Marlboro family's volume was up
24.2 billion units (30.8%) for a 27.8% share of the total industry, as compared
with a 23.0% share in the first nine months of 1993. In the discount segment,
PM Inc.'s shipments decreased 16.6% to 31.9 billion units in the first nine
months of 1994, compared with an industry decrease of 6.2%, resulting in a
decrease of 3.3 share points in this segment to 26.5%. (See below for a
discussion of volume changes in the third quarter of 1994.)
Since the implementation of the strategy announced on April 2, 1993 and
subsequent actions taken by PM Inc. (see below), Nielsen retail sales data
indicate share gains for PM Inc. and Marlboro, growing from their low point of
41.6% and 22.0%, respectively, in March 1993 to 46.2% and 29.3%, respectively,
in September 1994. Additionally, retail share of PM Inc.'s other premium
brands, as a group, climbed to 8.8% in September 1994, up from 8.3% in August
1993, when PM Inc. lowered their wholesale list prices. (March 1993 retail
market shares were restated in the first quarter of 1994 to reflect PM Inc.'s
change to a more representative Nielsen survey of retail outlets. Previously
reported retail market shares for PM Inc. and Marlboro in March 1993 were 41.7%
and 22.1%, respectively.)
During the first nine months of 1994, the Company's domestic tobacco
operating revenues increased 7.4% due primarily to volume increases ($1.1
billion) and favorable product mix ($506 million), partially offset by price
decreases ($1.1 billion). Operating income for the first nine months of 1994
increased 7.3% from the comparable 1993 period, due primarily to volume
increases ($733 million) and favorable product mix, and lower marketing,
administration and research costs ($46 million), partially offset by price
decreases ($1.1 billion).
-17-
<PAGE>
During the second quarter of 1993, PM Inc. implemented an extensive
promotional program to reduce the average retail price of Marlboro cigarettes.
This action, which represented a major shift in its domestic tobacco pricing
strategy, was intended to restore lost market share and improve long-term
profitability. The market share results of the Marlboro brand price promotion
exceeded expectations. Accordingly, during the third quarter of 1993, PM Inc.
announced certain actions designed to continue its share recovery strategy.
Specifically, PM Inc. created a two category pricing structure for its tobacco
brands, premium and discount. In the premium segment, PM Inc. converted its
Marlboro retail price promotion into an equivalent wholesale list price
reduction that applied to all its other premium brands as well. In the discount
segment, PM Inc. raised the net list price of its deep discount products. Its
other discount brands are being offered at the same net list price. These
strategies effectively narrowed the price gap between PM Inc.'s premium
cigarette brands and competitors' discount products. The strategy has thus far
proved successful, with PM Inc. recording share and volume gains for Marlboro
and its other premium brands since lowering prices.
INTERNATIONAL TOBACCO. Operating revenues increased 10.5% due primarily to
favorable volume/mix ($588 million), higher foreign excise taxes ($539 million)
and price increases ($174 million), partially offset by currency movement ($19
million). Total international unit volume increased 56 billion units (15.8%) to
408 billion units. Volume advanced in most markets, including Germany, Italy,
France, Spain, Holland, Belgium, Central and Eastern Europe, the Middle East,
Hong Kong, Japan, Korea, Argentina and Brazil. Volume declined in Turkey as
poor economic conditions persisted. The Company's market share advanced in most
of its major international markets with record shares achieved in Germany,
Italy, France, Spain, Holland, Belgium, Switzerland, Finland, Japan, Korea,
Hong Kong, Singapore, Argentina and Brazil. International volume continued to
grow for Marlboro and the Company's other U.S. heritage brands. Operating
income increased 18.1% due primarily to volume/mix increases ($287 million) and
price increases and lower costs (aggregating $247 million), partially offset by
higher marketing expenses ($122 million) and currency movement ($56 million).
<TABLE>
<CAPTION>
For the Three Months Ended September 30,
-----------------------------------------
Operating Revenues Operating Income
------------------ -----------------
(in millions)
1994 1993 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
Domestic tobacco $2,906 $2,488 $ 863 $ 616
International tobacco 4,771 4,063 800 678
------ ------ ------ ------
Total $7,677 $6,551 $1,663 $1,294
====== ====== ====== ======
</TABLE>
-18-
<PAGE>
DOMESTIC TOBACCO. During the third quarter of 1994, domestic cigarette
industry volume (based on shipments) shifted from the discount segment to the
premium segment. The premium and discount segments accounted for approximately
68% and 32%, respectively, of the domestic cigarette industry in the third
quarter of 1994, compared with 66% and 34%, respectively, in the comparable
period of 1993.
PM Inc.'s domestic volume (based on shipments) was 57.1 billion units for the
third quarter of 1994, an increase of 9.6% over the comparable 1993 period,
compared with an industry increase of 5.3%. PM Inc.'s volume increase reflects
the success of PM Inc.'s new pricing strategy and its marketing and promotional
programs. PM Inc.'s market share was 44.9%, up 1.8 share points from the
comparable 1993 period. In the premium segment, volume in PM Inc.'s brands
increased 13.5% in the quarter, compared with a 7.4% increase for the industry,
resulting in a category share gain of 2.9 share points to 53.9%. The Marlboro
family's volume was up 5.3 billion units (17.2%) for a 28.6% share of the total
industry, as compared with a 25.7% share in the third quarter of 1993. In the
discount segment, PM Inc.'s shipments decreased 4.9% to 10.6 billion units,
compared with an industry increase of 1.3%, resulting in a loss of 1.6 share
points in this segment to 25.8%.
PM Inc.'s domestic tobacco operating revenues increased 16.8% due primarily
to volume increases ($238 million), price increases ($115 million) and favorable
product mix ($54 million). Operating income increased 40.1% from the comparable
1993 period, due primarily to volume increases ($140 million), price increases
($89 million) and favorable product mix, partially offset by higher marketing,
administration and research costs ($33 million).
INTERNATIONAL TOBACCO. Operating revenues increased 17.4% due primarily to
higher foreign excise taxes ($349 million), favorable volume/mix ($227 million),
currency movement ($83 million) and price increases ($48 million). Total
international unit volume increased 23 billion units (19.0%) to 144 billion
units. Volume advanced in most markets, including Germany, Italy, France, Spain,
Holland, Belgium, Central and Eastern Europe, the Middle East, Hong Kong, Korea
and Argentina. Volume declined in Turkey as poor economic conditions persisted.
The Company's market share advanced in most of its major international markets,
with record shares achieved in Germany, Italy, France, Spain, Holland, Belgium,
Switzerland, Finland, Japan, Korea, Hong Kong, Singapore, Argentina and Brazil.
International volume continued to grow for Marlboro and the Company's other U.S.
heritage brands. Operating income increased 18.0% due primarily to price
increases and lower costs (aggregating $84 million) and volume/mix increases
($78 million), partially offset by higher marketing expenses ($43 million).
-19-
<PAGE>
Food
____
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
-----------------------------------------
Operating Revenues Operating Income
------------------ -----------------
(in millions)
1994 1993 1994 1993
------- ------- ------ ------
<S> <C> <C> <C> <C>
North American food $15,952 $15,887 $1,960 $1,864
International food 7,130 6,825 756 745
------- ------- ------ ------
Total $23,082 $22,712 $2,716 $2,609
======= ======= ====== ======
</TABLE>
During the first nine months of 1994, NORTH AMERICAN FOOD operating revenues
increased 0.4% due to volume increases ($399 million) and price increases, due
primarily to rising commodity costs ($303 million), partially offset by the
impact of dispositions, net of acquisitions ($562 million) and currency movement
($75 million). Volume rose from increases in cheese; in cereals and processed
meats due primarily to new products and line extensions; in frozen pizza due to
geographic expansion and category growth; and in foodservice and Canadian
operations. Volume declined in commodity oil products, dinners and enhancers
(rice products, stuffing mixes and syrups) and coffee (reflecting category
contraction from higher pricing due to increased green bean costs). Operating
income increased 5.2% over the comparable 1993 period, due primarily to volume
increases ($146 million) and price increases, net of cost increases ($100
million), partially offset by higher marketing, administration and research
costs ($158 million).
In October 1994, the Company announced an agreement to sell The All American
Gourmet Company (frozen dinners business) to H. J. Heinz Company. Separately,
the Company announced that it is in negotiations which may result in the sale of
its Kraft Foodservice distribution business.
In May 1994, new labeling requirements for food products, issued by the U.S.
Food and Drug Administration, became effective. Compliance with the new
requirements has not had, and is not expected to have, a material adverse impact
on domestic food results of operations.
Operating revenues for INTERNATIONAL FOOD increased 4.5% due primarily to
acquisitions ($284 million) and price increases, partially offset by currency
movement ($232 million). Volume grew in coffee, due partly to acquisitions, but
also because the trade stepped up their purchases in anticipation of price
increases due to higher green bean costs. Confectionery volume increased,
supported by new product launches. Grocery volume was down in several European
markets due to intense price competition, partially offset by increases in the
Asia/Pacific region due to improved results from key brands. Operating income
increased 1.5% from the 1993 period, due primarily to acquisitions ($30 million)
and price increases, partially offset by higher marketing, administration and
research costs ($57 million) and currency movement ($49 million).
-20-
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended September 30,
-----------------------------------------
Operating Revenues Operating Income
------------------ -----------------
(in millions)
1994 1993 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
North American food $5,293 $5,261 $ 618 $ 581
International food 2,500 2,205 269 240
------ ------ ----- -----
Total $7,793 $7,466 $ 887 $ 821
====== ====== ===== =====
</TABLE>
During the third quarter of 1994, NORTH AMERICAN FOOD operating revenues
increased 0.6% due to price increases ($117 million, due in part to higher
coffee prices reflecting high green bean costs in the third quarter) and volume
increases ($87 million), partially offset by the impact of dispositions, net of
acquisitions ($149 million) and currency movement ($23 million). Volume
increased in cheese; in cereals and processed meats due primarily to new product
introductions and line extensions; and in frozen pizza due to geographic
expansion and category growth. Volume declined in coffee (reflecting category
contraction from higher prices), beverages and commodity oils. Operating income
increased 6.4% over the comparable 1993 period, due primarily to price
increases, net of cost increases ($88 million) and volume increases ($24
million), partially offset by higher marketing, administration and research
costs ($73 million).
Operating revenues for INTERNATIONAL FOOD increased 13.4% due primarily to
price increases ($175 million), currency movement ($90 million), volume
increases ($16 million) and acquisitions ($13 million). Coffee volume rose in
Europe, partly due to acquisitions, but also because the trade stepped up their
purchases in anticipation of price increases due to higher green bean costs.
Confectionery volume was down, due primarily to hotter-than-normal weather in
Europe this summer, partially offset by new product launches. Cheese volume in
Europe and grocery volume in the Asia/Pacific region advanced due to
acquisitions and improved results from key brands. Operating income increased
12.1% from the 1993 period, due primarily to price increases, net of cost
increases ($77 million), partially offset by higher marketing expenses ($52
million).
Beer
____
NINE MONTHS ENDED SEPTEMBER 30
Operating revenues for the first nine months of 1994 increased $117 million
(3.6%) from the comparable 1993 period. This increase was due to the
acquisition of Molson Breweries U.S.A. Inc. in the second quarter of 1993 ($71
million), price/mix increases ($61 million) and volume increases ($41 million),
partially offset by the disposition of distributorships ($56 million). Unit
volume (based on shipments) increased 2.9% in the first nine months of 1994
reflecting strong growth in premium brands (7.8%), partially offset by a
decrease in budget brands. Premium brand growth was led by ice-brewed product
introductions. Miller Lite volume declined, but volume for the Lite brand
family grew due to the introduction of Lite Ice. Operating income increased $42
million (12.9%) over the comparable 1993 period, due primarily to price/mix
increases ($33 million) and higher volume ($18 million), partially offset by the
disposition of distributorships ($8 million).
-21-
<PAGE>
Periodically, legislation is proposed which would increase excise taxes and
curtail the advertisement of beer. If implemented, such legislation could
result in volume, operating revenues and operating income declines.
QUARTER ENDED SEPTEMBER 30
Operating revenues for the third quarter of 1994 increased $29 million (2.6%)
from the comparable 1993 period. This increase was due to volume increases ($30
million) and price/mix increases ($22 million), partially offset by the
disposition of distributorships ($23 million). Unit volume (based on shipments)
increased 2.8% reflecting the strong performance of the Company's premium brand
portfolio, which had volume increases of 7.7% for the quarter. Premium growth
was led by sales of Miller's new ice-brewed products and volume increases for
brands imported by Molson Breweries U.S.A. Inc. Partially offsetting this
increase was a volume decline for the Company's budget brands. Overall volume
for the Lite brand family was higher on the success of Lite Ice, partially
offset by a modest decline in Miller Lite. Operating income increased $17
million (18.1%) from the comparable 1993 period, due primarily to volume
increases ($13 million) and price/mix increases ($12 million), partially offset
by the disposition of distributorships ($7 million).
Financial Services and Real Estate
__________________________________
NINE MONTHS ENDED SEPTEMBER 30
For the first nine months of 1994, operating revenues from financial services
and real estate operations increased 37.3% and operating income decreased 0.6%
from the first nine months of 1993. Operating revenues from financial services
decreased 14.1% from the comparable 1993 period, due primarily to lower finance
asset investment levels, reflecting the sale of the Company's stock and bond
portfolio in the first quarter. The proceeds from the sales were not
reinvested, but used for a $475 million dividend to Philip Morris Companies Inc.
Operating income from financial services decreased 18.8% due primarily to high
third quarter 1993 income recorded after the Company revalued its leveraged
lease portfolio to account for the new federal income tax rate and lower 1994
finance asset investment income. Operating income from real estate operations
increased from 1993 levels, due primarily to higher residential land sales in
Southern California and Colorado.
QUARTER ENDED SEPTEMBER 30
During the third quarter of 1994, operating revenues from financial services
and real estate operations increased 23.5% and operating income decreased 29.4%
from the third quarter of 1993. Operating revenues from financial services
decreased 20.0% due primarily to lower finance asset investment levels versus
1993. Operating income from financial services decreased 48.6% due primarily to
high third quarter 1993 income recorded after the Company revalued its leveraged
lease portfolio to account for the new federal income tax rate and lower 1994
finance asset investment income. Operating income from real estate operations
in 1994 increased from 1993 levels, due primarily to higher residential land
sales in Southern California and Colorado.
-22-
<PAGE>
Cash Provided and Used
______________________
Net Cash Provided by Operating Activities
_________________________________________
During the first nine months of 1994, cash provided by operating activities
was $4.4 billion, compared with $4.6 billion in the first nine months of 1993.
The decrease was due primarily to more cash used for working capital items in
1994 and payment of accreted interest on matured zero coupon bonds, partially
offset by higher earnings.
Free cash flow is a measure of excess cash generated by a company and is
available for debt repayment, share repurchase and acquisitions. The Company
defines free cash flow as cash provided by operating activities less capital
expenditures, dividends paid to stockholders and net investments in finance
assets. For the first nine months of 1994, consolidated free cash flow totaled
$2.0 billion, as compared to $1.8 billion in the comparable 1993 period. The
increase was due primarily to lower net investments in finance assets and higher
earnings, partially offset by more cash used for working capital items in 1994
and repayment of accreted interest on matured zero coupon bonds.
Net Cash Used in Investing Activities
_____________________________________
Cash used in investing activities for the first nine months of 1994 was $668
million, compared with $3.6 billion for the comparable 1993 period. The
decrease reflects a $2.5 billion decrease in cash used for acquisitions, net of
dispositions, as well as a $327 million increase in net proceeds from finance
assets. Capital expenditures were $1.0 billion in the first nine months of
1994, of which 60% related to food operations and 31% related to tobacco
operations.
During the first nine months of 1993, the Company acquired Freia Marabou a.s,
Scandinavia's leading confectionery company, at a cost of approximately $1.3
billion, a North American ready-to-eat cereal business at a cost of $454 million
and Terry's Group in the United Kingdom for $295 million. In addition, the
Company acquired a 20% equity interest in Molson Breweries in Canada and 100% of
Molson Breweries U.S.A. Inc., at a cost of $295 million. The Company also
increased its investment in tobacco operations in Central and Eastern Europe.
Net Cash Used in Financing Activities
_____________________________________
During the first nine months of 1994, the Company's net cash used in
financing activities was $3.6 billion, compared with $1.6 billion during the
first nine months of 1993. The change reflects a $490 million net issuance of
short-term borrowings in 1994 compared with $2.3 billion in the 1993 period, as
well as a $1.4 billion net repayment of long-term debt in 1994 compared with
$946 million in the 1993 period. Cash used in financing activities for the
first nine months of 1994 also reflects dividends paid ($1.8 billion) and the
purchase of common stock ($1.0 billion).
The Company may continue to refinance long-term and short-term debt from time
to time. The nature and amount of the Company's long-term and short-term debt
and the proportionate amount of each can be expected to vary as a result of
future business requirements, market conditions and other factors.
-23-
<PAGE>
At September 30, 1994, the Company's ratio of consumer products debt to
equity ratio was 1.22, down from 1.41 at December 31, 1993. The change reflects
an increase in stockholders' equity which was due primarily to net earnings in
the first nine months of 1994 and favorable movement in the currency translation
adjustment ($640 million), partially offset by dividends declared and purchases
of common stock.
Dividends paid in the first nine months of 1994 increased 3.0% over the
comparable period of 1993, reflecting a 6.2% increase in the annual dividend
rate to $2.76 per share from $2.60 per share, partially offset by a lower number
of outstanding shares of stock. On August 31, 1994, the Board of Directors
increased the Company's quarterly dividend by 19.6% (payable October 11),
representing an annualized dividend rate of $3.30 per share.
During the first nine months of 1994, the Company repurchased 19.9 million
shares of its common stock at an aggregate cost of $1.1 billion; 7.5 million
shares were repurchased in the third quarter of 1994. These purchases were made
in accordance with the Company's November 1991 announcement of its intention to
spend up to $2 billion to repurchase common stock in open market transactions;
in May 1992, the Board of Directors authorized an additional $3 billion for such
purchases. Through September 30, 1994, cumulative purchases under the program
totaled 71.8 million shares at a cost of $4.9 billion. On August 31, 1994, the
Board of Directors authorized a new three-year share repurchase program worth $6
billion. The new program took effect on October 27, 1994, after the balance of
the previous repurchase program had been used.
Contingencies
_____________
See Note 2 to the Condensed Consolidated Financial Statements.
-24-
<PAGE>
Item 1. Legal Proceedings.
Reference is made to Note 2. Contingencies.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.2 By-laws, as amended, of the Company.
12 Statement regarding computation of ratios of earnings to fixed
charges.
27 Financial Data Schedule.
(b) Reports on Form 8-K. Registrant filed no reports on Form 8-K during
the quarter for which this report is filed.
___________
-25-
<PAGE>
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHILIP MORRIS COMPANIES INC.
BY /s/ HANS G. STORR
Hans G. Storr, Executive Vice President and
Chief Financial Officer
DATE November 14, 1994
-26-
<PAGE>
Exhibit 3.2
BY-LAWS
OF
PHILIP MORRIS COMPANIES INC.
ARTICLE I
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. - The annual meeting of the stockholders
for the election of directors and for the transaction of such other business
as may properly come before the meeting, and any postponement or adjournment
thereof, shall be held on such date and at such time as the Board of Directors
may in its discretion determine.
SECTION 2. SPECIAL MEETINGS. - Unless otherwise provided by law,
special meetings of the stockholders may be called by the chairman of the
Board of Directors, the deputy chairman of the Board of Directors (if any) or
the president or any vice chairman of the Board of Directors or by order of
the Board of Directors whenever deemed necessary.
SECTION 3. PLACE OF MEETINGS. - All meetings of the stockholders shall
be held at such place in the Commonwealth of Virginia as from time to time may
be fixed by the Board of Directors.
SECTION 4. NOTICE OF MEETINGS. - Written notice, stating the place,
day and hour and, in the case of a special meeting, the purpose or purposes
for which the meeting is called, shall be given by mail not less than ten nor
more than sixty days before the date of the meeting (except as a different
time is specified herein or by law), to each stockholder of record having
voting power in respect of the business to be transacted thereat, at his or
her address as it appears on the stock transfer books of the Corporation.
Notice of a stockholders' meeting to act on an amendment of the
Articles of Incorporation, a plan of merger or share exchange, a proposed
sale of all, or substantially all of the Corporation's assets, otherwise than
in the usual and regular course of business, or the dissolution of the
Corporation shall be given, in the manner provided above, not less than
twenty-five nor more than sixty days before the date of the meeting and shall
be accompanied, as appropriate, by a copy of the proposed amendment, plan of
merger or share exchange or sale agreement.
August 31, 1994
<PAGE>
Notwithstanding the foregoing, a written waiver of notice signed by the
person or persons entitled to such notice, either before or after the time
stated therein, shall be equivalent to the giving of such notice. A
stockholder who attends a meeting shall be deemed to have (i) waived
objection to lack of notice or defective notice of the meeting, unless at the
beginning of the meeting he objects to holding the meeting or transacting
business at the meeting, and (ii) waived objection to consideration of a
particular matter at the meeting that is not within the purpose or purposes
described in the meeting notice, unless he objects to considering the matter
when it is presented.
SECTION 5. QUORUM. - At all meetings of the stockholders, unless a
greater number or voting by classes is required by law, a majority of the
shares entitled to vote, represented in person or by proxy, shall constitute
a quorum. If a quorum is present, action on a matter is approved if the votes
cast favoring the action exceed the votes cast opposing the action, unless
the vote of a greater number or voting by classes is required by law or the
Articles of Incorporation, and except that in elections of directors those
receiving the greatest number of votes shall be deemed elected even though
not receiving a majority. Less than a quorum may adjourn.
SECTION 6. ORGANIZATION AND ORDER OF BUSINESS. - At all meetings of
the stockholders the chairman of the Board of Directors or, in his absence,
the deputy chairman of the Board of Directors (if any) or, in the absence of
both, the president, shall act as chairman. In the absence of all of the
foregoing officers or, if present, with their consent, a majority of the
shares entitled to vote at such meeting, may appoint any person to act as
chairman. The secretary of the Corporation or, in his absence, an assistant
secretary, shall act as secretary at all meetings of the stockholders. In
the event that neither the secretary nor any assistant secretary is present,
the chairman may appoint any person to act as secretary of the meeting.
The chairman shall have the right and authority to prescribe such
rules, regulations and procedures and to do all such acts and things as are
necessary or desirable for the proper conduct of the meeting, including,
without limitation, the establishment of procedures for the dismissal of
business not properly presented, the maintenance of order and safety,
limitations on the time allotted to questions or comments on the affairs of
the Corporation, restrictions on entry to such meeting after the time
prescribed for the commencement thereof and the opening and closing of the
voting polls.
At each annual meeting of stockholders, only such business shall be
conducted as shall have been properly brought before the meeting (a) by or at
the direction of the Board of Directors or (b) by any stockholder of the
Corporation who shall be entitled to vote at such meeting and who complies
with the notice procedures set
-2-
<PAGE>
forth in this Section 6. In addition to any other applicable requirements,
for business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing
to the secretary of the Corporation. To be timely, a stockholder's notice
must be given, either by personal delivery or by United States certified
mail, postage prepaid, and received at the principal executive offices of the
Corporation (i) not less than 120 days nor more than 150 days before the
first anniversary of the date of the Corporation's proxy statement in
connection with the last annual meeting of stockholders or (ii) if no annual
meeting was held in the previous year or the date of the applicable annual
meeting has been changed by more than 30 days from the date contemplated at
the time of the previous year's proxy statement, not less than 60 days before
the date of the applicable annual meeting. A stockholder's notice to the
secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting (a) a brief description of the business desired to
be brought before the annual meeting, including the complete text of any
resolutions to be presented at the annual meeting, and the reasons for
conducting such business at the annual meeting, (b) the name and address, as
they appear on the Corporation's stock transfer books, of such stockholder
proposing such business, (c) a representation that such stockholder is a
stockholder of record and intends to appear in person or by proxy at such
meeting to bring the business before the meeting specified in the notice, (d)
the class and number of shares of stock of the Corporation beneficially owned
by the stockholder and (e) any material interest of the stockholder in such
business. Notwithstanding anything in the By-Laws to the contrary, no
business shall be conducted at an annual meeting except in accordance with
the procedures set forth in this Section 6. The chairman of an annual meeting
shall, if the facts warrant, determine that the business was not brought
before the meeting in accordance with the procedures prescribed by this
Section 6, and if he should so determine, he shall so declare to the meeting
and the business not properly brought before the meeting shall not be
transacted. Notwithstanding the foregoing provisions of this Section 6, a
stockholder seeking to have a proposal included in the Corporation's proxy
statement shall comply with the requirements of Regulation 14A under the
Securities Exchange Act of 1934, as amended (including, but not limited to,
Rule 14a-8 or its successor provision). The secretary of the Corporation
shall deliver each such stockholder's notice that has been timely received to
the Board of Directors or a committee designated by the Board of Directors
for review.
SECTION 7. VOTING. - A stockholder may vote either in person or by
proxy executed in writing by the stockholder or by his duly authorized
attorney-in-fact. No stockholder may authorize more than four persons to act
for him, and any proxy shall be delivered to the secretary of the meeting at
or prior to the time designated by the chairman or in the order of business
for so delivering such proxies. No proxy shall be valid after eleven months
from its date,
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<PAGE>
unless otherwise provided in the proxy. Each holder of record of
stock of any class shall, as to all matters in respect of which
stock of such class has voting power, be entitled to such vote as
is provided in the Articles of Incorporation for each share of
stock of such class standing in his name on the books of the
Corporation. Unless required by statute or determined by the
chairman to be advisable, the vote on any questions need not be by
ballot. On a vote by ballot, each ballot shall be signed by the
stockholder voting or by such stockholder's proxy, if there be such
proxy.
SECTION 8. INSPECTORS. - At every meeting of the
stockholders for election of directors, the proxies shall be
received and taken in charge, all ballots shall be received and
counted and all questions touching the qualifications of voters,
the validity of proxies, and the acceptance or rejection of votes
shall be decided, by two inspectors. Such inspectors shall be
appointed by the chairman of the meeting. They shall be sworn
faithfully to perform their duties and shall in writing certify to
the returns. No candidate for election as director shall be
appointed or act as inspector.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. - The business and affairs of
the Corporation shall be managed under the direction of the Board
of Directors.
SECTION 2. NUMBER. - The number of directors shall be
seventeen (17).
SECTION 3. TERM OF OFFICE AND QUALIFICATION. - Each
director shall serve for the term for which he shall have been
elected and until his successor shall have been duly elected.
SECTION 4. NOMINATION AND ELECTION OF DIRECTORS. - At each
annual meeting of stockholders, the stockholders entitled to vote
shall elect the directors. No person shall be eligible for
election as a director unless nominated in accordance with the
procedures set forth in this Section 4. Nominations of persons for
election to the Board of Directors may be made by the Board of
Directors or any committee designated by the Board of Directors or
by any stockholder entitled to vote for the election of directors
at the applicable meeting of stockholders who complies with the
notice procedures set forth in this Section 4. Such nominations,
other than those made by the Board of Directors or any committee
designated by the Board of Directors, may be made only if written
notice of a stockholder's intent to nominate one or more persons
for election as directors at the applicable meeting of
stockholders has been given,
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<PAGE>
either by personal delivery or by United States certified mail,
postage prepaid, to the secretary of the Corporation and received
(i) not less than 120 days nor more than 150 days before the first
anniversary of the date of the Corporation's proxy statement in
connection with the last annual meeting of stockholders, or (ii) if
no annual meeting was held in the previous year or the date of the
applicable annual meeting has been changed by more than 30 days
from the date contemplated at the time of the previous year's proxy
statement, not less than 60 days before the date of the applicable
annual meeting, or (iii) with respect to any special meeting of
stockholders called for the election of directors, not later than
the close of business on the seventh day following the date on
which notice of such meeting is first given to stockholders. Each
such stockholder's notice shall set forth (a) as to the
stockholder giving the notice, (i) the name and address, as they
appear on the Corporation's stock transfer books, of such
stockholder, (ii) a representation that such stockholder is a
stockholder of record and intends to appear in person or by proxy
at such meeting to nominate the person or persons specified in the
notice, (iii) the class and number of shares of stock of the
Corporation beneficially owned by such stockholder, and (iv) a
description of all arrangements or understandings between such
stockholder and each nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination
or nominations are to be made by such stockholder; and (b) as to
each person whom the stockholder proposes to nominate for election
as a director, (i) the name, age, business address and, if known,
residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of
stock of the Corporation which are beneficially owned by such
person, (iv) any other information relating to such person that is
required to be disclosed in solicitations of proxies for election
of directors or is otherwise required by the rules and regulations
of the Securities and Exchange Commission promulgated under the
Securities Exchange Act of 1934, as amended, and (v) the written
consent of such person to be named in the proxy statement as a
nominee and to serve as a director if elected. The secretary of
the Corporation shall deliver each such stockholder's notice that
has been timely received to the Board of Directors or a committee
designated by the Board of Directors for review. Any person
nominated for election as director by the Board of Directors or
any committee designated by the Board of Directors shall, upon the
request of the Board of Directors or such committee, furnish to
the secretary of the Corporation all such information pertaining
to such person that is required to be set forth in a stockholder's
notice of nomination. The chairman of the meeting of stockholders
shall, if the facts warrant, determine that a nomination was not
made in accordance with the procedures prescribed by this Section
4, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
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<PAGE>
SECTION 5. ORGANIZATION. - At all meetings of the Board
of Directors, the chairman of the Board of Directors or, in his
absence, the deputy chairman of the Board of Directors (if any) or,
in the absence of both, the president shall act as chairman of the
meeting. The secretary of the Corporation or, in his absence, an
assistant secretary shall act as secretary of meetings of the
Board of Directors. In the event that neither the secretary nor
any assistant secretary shall be present at such meeting, the
chairman of the meeting shall appoint any person to act as
secretary of the meeting.
SECTION 6. VACANCIES. - Any vacancy occurring in the
Board of Directors, including a vacancy resulting from amending
these By-Laws to increase the number of directors by thirty percent
or less, may be filled by the affirmative vote of a majority of the
remaining directors though less than a quorum of the Board of
Directors.
SECTION 7. PLACE OF MEETING. - Meetings of the Board of
Directors, regular or special, may be held either within or without
the Commonwealth of Virginia.
SECTION 8. ORGANIZATIONAL MEETING. - The annual
organizational meeting of the Board of Directors shall be held
immediately following adjournment of the annual meeting of
stockholders and at the same place, without the requirement of any
notice other than this provision of the By-Laws.
SECTION 9. REGULAR MEETINGS: NOTICE. - Regular meetings
of the Board of Directors shall be held at such times and places
as it may from time to time determine. Notice of such meetings
need not be given if the time and place have been fixed at a
previous meeting.
SECTION 10. SPECIAL MEETINGS. - Special meetings of the
Board of Directors shall be held whenever called by order of the
chairman of the Board of Directors, the deputy chairman of the
Board of Directors (if any) or of the president or of two of the
directors. Notice of each such meeting, which need not specify
the business to be transacted thereat, shall be mailed to each
director, addressed to his residence or usual place of business, at
least two days before the day on which the meeting is to be held,
or shall be sent to such place by telegraph, telex or telecopy or
be delivered personally or by telephone, not later than the day
before the day on which the meeting is to be held.
SECTION 11. WAIVER OF NOTICE. - Whenever any notice is
required to be given to a director of any meeting for any purpose
under the provisions of law, the Articles of Incorporation or
these By-Laws, a waiver thereof in writing signed by the person or
persons entitled to such notice, either before or after the time
stated therein, shall be equivalent to the giving of such notice.
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<PAGE>
A director's attendance at or participation in a meeting waives
any required notice to him of the meeting unless he at the
beginning of the meeting or promptly upon his arrival objects to
holding the meeting or transacting business at the meeting and
does not thereafter vote for or assent to action taken at the
meeting.
SECTION 12. QUORUM AND MANNER OF ACTING. - Except where
otherwise provided by law, a majority of the directors fixed by
these By-Laws at the time of any regular or special meeting shall
constitute a quorum for the transaction of business at such
meeting, and the act of a majority of the directors present at any
such meeting at which a quorum is present shall be the act of the
Board of Directors. In the absence of a quorum, a majority of
those present may adjourn the meeting from time to time until a
quorum be had. Notice of any such adjourned meeting need not be
given.
SECTION 13. ORDER OF BUSINESS. - At all meetings of the
Board of Directors business may be transacted in such order as
from time to time the Board of Directors may determine.
SECTION 14. COMMITTEES. - In addition to the executive
committee authorized by Article III of these By-Laws, other
committees, consisting of two or more directors, may be designated
by the Board of Directors by a resolution adopted by the greater
number of (i) a majority of all directors in office at the time
the action is being taken or (ii) the number of directors required
to take action under Article II, Section 12 hereof. Any such
committee, to the extent provided in the resolution of the Board
of Directors designating the committee, shall have and may
exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, except
as limited by law.
ARTICLE III
EXECUTIVE COMMITTEE
SECTION 1. HOW CONSTITUTED AND POWERS. - The Board of
Directors, by resolution adopted pursuant to Article II, Section
14 hereof, may designate, in addition to the chairman of the
Board of Directors, one or more directors to constitute an
executive committee, who shall serve during the pleasure of the
Board of Directors. The executive committee, to the extent
provided in such resolution and permitted by law, shall have and
may exercise all of the authority of the Board of Directors.
SECTION 2. ORGANIZATION, ETC. - The executive committee may
choose a chairman and secretary. The executive committee shall
keep a record of its acts and proceedings and report the same from
time to time to the Board of Directors.
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<PAGE>
SECTION 3. MEETINGS. - Meetings of the executive
committee may be called by any member of the committee. Notice of
each such meeting, which need not specify the business to be
transacted thereat, shall be mailed to each member of the
committee, addressed to his residence or usual place of business,
at least two days before the day on which the meeting is to be
held or shall be sent to such place by telegraph, telex or
telecopy or be delivered personally or by telephone, not later
than the day before the day on which the meeting is to be held.
SECTION 4. QUORUM AND MANNER OF ACTING. - A majority of
the executive committee shall constitute a quorum for transaction
of business, and the act of a majority of those present at a
meeting at which a quorum is present shall be the act of the
executive committee. The members of the executive committee shall
act only as a committee, and the individual members shall have no
powers as such.
SECTION 5. REMOVAL. - Any member of the executive
committee may be removed, with or without cause, at any time, by
the Board of Directors.
SECTION 6. VACANCIES. - Any vacancy in the executive
committee shall be filled by the Board of Directors.
ARTICLE IV
OFFICERS
SECTION 1. NUMBER. - The officers of the Corporation shall
be a chairman of the Board of Directors, a deputy chairman of the
Board of Directors (if elected by the Board of Directors), a
president, one or more vice chairmen of the Board of Directors (if
elected by the Board of Directors), one or more vice presidents
(one or more of whom may be designated executive vice president or
senior vice president), a treasurer, a controller, a secretary,
one or more assistant treasurers, assistant controllers and
assistant secretaries and such other officers as may from time to
time be chosen by the Board of Directors. Any two or more offices
may be held by the same person.
SECTION 2. ELECTION, TERM OF OFFICE AND QUALIFICATIONS. -
All officers of the Corporation shall be chosen annually by the
Board of Directors, and each officer shall hold office until his
successor shall have been duly chosen and qualified or until he
shall resign or shall have been removed in the manner hereinafter
provided. The chairman of the Board of Directors, the deputy
chairman of the Board of Directors (if any), the president and the
vice chairmen of the Board of Directors (if any) shall be chosen
from among the directors.
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<PAGE>
SECTION 3. VACANCIES. - If any vacancy shall occur among
the officers of the Corporation, such vacancy shall be filled by
the Board of Directors.
SECTION 4. OTHER OFFICERS, AGENTS AND EMPLOYEES - THEIR
POWERS AND DUTIES. - The Board of Directors may from time to time
appoint such other officers as the Board of Directors may deem
necessary, to hold office for such time as may be designated by it
or during its pleasure, and the Board of Directors or the chairman
of the Board of Directors may appoint, from time to time, such
agents and employees of the Corporation as may be deemed proper,
and may authorize any officers to appoint and remove agents and
employees. The Board of Directors or the chairman of the Board of
Directors may from time to time prescribe the powers and duties of
such other officers, agents and employees of the Corporation.
SECTION 5. REMOVAL. - Any officer, agent or employee of
the Corporation may be removed, either with or without cause, by a
vote of a majority of the Board of Directors or, in the case of
any agent or employee not appointed by the Board of Directors, by
a superior officer upon whom such power of removal may be conferred
by the Board of Directors or the chairman of the Board of
Directors.
SECTION 6. CHAIRMAN OF THE BOARD OF DIRECTORS. - The
chairman of the Board of Directors shall preside at meetings of
the stockholders and of the Board of Directors and shall be a
member of the executive committee. He shall be the chief
executive officer of the Corporation and shall be responsible to
the Board of Directors. Subject to the Board of Directors, he
shall be responsible for the general management and control of the
business and affairs of the Corporation. He shall see that all
orders and resolutions of the Board of Directors are carried into
effect. He shall from time to time report to the Board of
Directors on matters within his knowledge which the interests of
the Corporation may require be brought to its notice. He shall do
and perform such other duties from time to time as may be assigned
to him by the Board of Directors.
SECTION 7. DEPUTY CHAIRMAN OF THE BOARD OF DIRECTORS. -
In the absence of the chairman of the Board of Directors, the deputy
chairman of the Board of Directors shall preside at meetings of the
stockholders and of the Board of Directors. He shall be a member of
the executive committee. He shall be responsible to the chairman of
the Board of Directors and shall perform such duties as shall be
assigned to him by the chairman of the Board of Directors. He shall
from time to time report to the chairman of the Board of Directors
on matters within his knowledge which the interests of the Corporation
may require be brought to his notice.
SECTION 8. PRESIDENT. - In the absence of the chairman of
the Board of Directors and the deputy chairman of the Board of
Directors (if any), the president shall preside at meetings of the
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<PAGE>
stockholders and of the Board of Directors. He shall be a member
of the executive committee. He shall be the chief operating officer
of the Corporation, responsible to the chairman of the Board of
Directors and shall devote himself to the Corporation's operations
under the basic policies set by the Board of Directors and the
chairman of the Board of Directors. He shall from time to time report
to the chairman of the Board of Directors on matters within his
knowledge which the interests of the Corporation may require be
brought to his notice. In the absence of the chairman of the Board
of Directors and the deputy chairman of the Board of Directors (if
any), he shall have all of the powers and the duties of the
chairman of the Board of Directors. He shall do and perform such
other duties from time to time as may be assigned to him by the
Board of Directors or by the chairman of the Board of Directors.
SECTION 9. VICE CHAIRMEN OF THE BOARD OF DIRECTORS. - In
the absence of the chairman of the Board of Directors, the deputy
chairman of the Board of Directors (if any) and the president, the
vice chairman of the Board of Directors designated for such purpose
by the chairman of the Board of Directors shall preside at meetings
of the stockholders and of the Board of Directors. Each vice chairman
of the Board of Directors shall be responsible to the chairman of the
Board of Directors. Each vice chairman of the Board of Directors shall
from time to time report to the chairman of the Board of Directors on
matters within his knowledge which the interests of the Corporation
may require be brought to his notice. In the absence or inability to
act of the chairman of the Board of Directors, the deputy chairman of
the Board of Directors (if any) and the president, such vice chairman
of the Board of Directors as the chairman of the Board of Directors may
designate for the purpose shall have the powers and discharge the duties
of the chairman of the Board of Directors. In the event of the failure
or inability of the chairman of the Board of Directors to so designate
a vice chairman of the Board of Directors, the Board of Directors may
designate a vice chairman of the Board of Directors who shall have the
powers and discharge the duties of the chairman of the Board of Directors.
SECTION 10. VICE PRESIDENTS. - The vice presidents of the
Corporation shall assist the chairman of the Board of Directors,
the deputy chairman of the Board of Directors, the president and
the vice chairmen of the Board of Directors in carrying out their
respective duties and shall perform those duties which may from
time to time be assigned to them.
SECTION 11. TREASURER. - The treasurer shall have charge
of the funds, securities, receipts and disbursements of the
Corporation. He shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such
banks or trust companies or with such bankers or other
depositaries as the Board of Directors may from time to time
designate. He shall render to the Board of Directors, the
chairman of the Board of Directors, the deputy chairman of the
Board of Directors, the president, the vice chairmen of the Board
of Directors, and the chief financial
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<PAGE>
officer, whenever required by any of them, an account of all of
his transactions as treasurer. If required, he shall give a bond
in such sum as the Board of Directors may designate, conditioned
upon the faithful performance of the duties of his office and the
restoration to the Corporation at the expiration of his term of
office or in case of his death, resignation or removal from
office, of all books, papers, vouchers, money or other property
of whatever kind in his possession or under his control belonging
to the Corporation. He shall perform such other duties as from
time to time may be assigned to him.
SECTION 12. ASSISTANT TREASURERS. - In the absence or
disability of the treasurer, one or more assistant treasurers
shall perform all the duties of the treasurer and, when so acting,
shall have all the powers of, and be subject to all restrictions
upon, the treasurer. Each assistant treasurer shall also perform
such other duties as from time to time may be assigned to him.
SECTION 13. SECRETARY. - The secretary shall keep the
minutes of all meetings of the stockholders and of the Board of
Directors in a book or books kept for that purpose. He shall keep
in safe custody the seal of the Corporation, and shall affix such
seal to any instrument requiring it. The secretary shall have
charge of such books and papers as the Board of Directors may
direct. He shall attend to the giving and serving of all notices
of the Corporation and shall also have such other powers and
perform such other duties as pertain to his office, or as the Board
of Directors, the chairman of the Board of Directors, the deputy
chairman of the Board of Directors, the president or any vice
chairman of the Board of Directors may from time to time
prescribe.
SECTION 14. ASSISTANT SECRETARIES. - In the absence or
disability of the secretary, one or more assistant secretaries
shall perform all of the duties of the secretary and, when so
acting, shall have all of the powers of, and be subject to all the
restrictions upon, the secretary. Each assistant secretary shall
also perform such other duties as from time to time may be
assigned to him.
SECTION 15. CONTROLLER. - The controller shall be
administrative head of the controller's department. He shall be
in charge of all functions relating to accounting, auditing and
the preparation and analysis of budgets and statistical reports
and shall establish, through appropriate channels, recording and
reporting procedures and standards pertaining to such matters. He
shall report to the chief financial officer and shall aid in
developing internal corporate policies whereby the business of the
Corporation shall be conducted with the maximum safety, efficiency
and economy, and he shall be available to all departments of the
Corporation for advice and guidance in the interpretation and
application of policies which are within the scope of his
authority. He shall perform such other duties as from time to
time may be assigned to him.
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<PAGE>
SECTION 16. ASSISTANT CONTROLLERS. - In the absence or
disability of the controller, one or more assistant controllers
shall perform all of the duties of the controller and, when so
acting, shall have all of the powers of, and be subject to all the
restrictions upon, the controller. Each assistant controller
shall also perform such other duties as from time to time may be
assigned to him.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 1. CONTRACTS. - The chairman of the Board of
Directors, the deputy chairman of the Board of Directors, the
president, any vice chairman of the Board of Directors, any vice
president, the treasurer and such other persons as the Board of
Directors may authorize shall have the power to execute any
contract or other instrument on behalf of the Corporation; no
other officer, agent or employee shall, unless otherwise in
these By-Laws provided, have any power or authority to bind the
Corporation by any contract or acknowledgement, or pledge its
credit or render it liable pecuniarily for any purpose or to any
amount.
SECTION 2. LOANS. - The chairman of the Board of
Directors, the deputy chairman of the Board of Directors, the
president, any vice chairman of the Board of Directors, any vice
president, the treasurer and such other persons as the Board of
Directors may authorize shall have the power to effect loans and
advances at any time for the Corporation from any bank, trust
company or other institution, or from any corporation, firm or
individual, and for such loans and advances may make, execute and
deliver promissory notes or other evidences of indebtedness of
the Corporation, and, as security for the payment of any and all
loans, advances, indebtedness and liability of the Corporation,
may pledge, hypothecate or transfer any and all stocks,
securities and other personal property at any time held by the
Corporation, and to that end endorse, assign and deliver the
same.
SECTION 3. VOTING OF STOCK HELD. - The chairman of the
Board of Directors, the deputy chairman of the Board of Directors,
the president, any vice chairman of the Board of Directors, any
vice president or the secretary may from time to time appoint an
attorney or attorneys or agent or agents of the Corporation to
cast the votes that the Corporation may be entitled to cast as a
stockholder or otherwise in any other corporation, any of whose
stock or securities may be held by the Corporation, at meetings
of the holders of the stock or other securities of such other
corporation, or to consent in writing to any action by any other
such corporation, and may instruct the person or persons so
appointed as to the manner of casting such votes or giving such
consent, and may execute or cause to be executed on behalf of the
Corporation such written proxies, consents, waivers
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<PAGE>
or other instruments as such officer may deem necessary or proper
in the premises; or the chairman of the Board of Directors, the
president, any vice chairman of the Board of Directors, any vice
president or the secretary may himself attend any meeting of the
holders of stock or other securities of such other corporation and
thereat vote or exercise any and all powers of the Corporation as
the holder of such stock or other securities of such other
corporation.
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
Certificates representing shares of the Corporation shall be
signed by the chairman of the Board of Directors, the deputy
chairman of the Board of Directors, or the president of the
Corporation and the secretary or an assistant secretary. Any and
all signatures on such certificates, including signatures of
officers, transfer agents and registrars, may be facsimile.
ARTICLE VII
DIVIDENDS
The Board of Directors may declare dividends from funds of
the Corporation legally available therefor.
ARTICLE VIII
SEAL
The Board of Directors shall provide a suitable seal or
seals, which shall be in the form of a circle, and shall bear
around the circumference the words "Philip Morris Companies Inc."
and in the center the word and figures "Virginia, 1985".
ARTICLE IX
FISCAL YEAR
The fiscal year of the Corporation shall be the calendar
year.
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ARTICLE X
AMENDMENTS
The power to alter, amend or repeal the By-Laws of the
Corporation or to adopt new By-Laws shall be vested in the Board of
Directors, but By-Laws made by the Board of Directors may be
repealed or changed by the stockholders, or new By-Laws may be
adopted by the stockholders, and the stockholders may prescribe
that any By-Laws made by them shall not be altered, amended or
repealed by the directors.
ARTICLE XI
EMERGENCY BY-LAWS
If a quorum of the Board of Directors cannot be readily
assembled because of some catastrophic event, and only in such
event, these By-Laws shall, without further action by the Board of
Directors, be deemed to have been amended for the duration of such
emergency, as follows:
SECTION 1. SECTION 6 OF ARTICLE II SHALL READ AS FOLLOWS:
Any vacancy occurring in the Board of
Directors may be filled by the affirmative
vote of a majority of the directors present
at a meeting of the Board of Directors
called in accordance with these By-Laws.
SECTION 2. THE FIRST SENTENCE OF SECTION 10 OF ARTICLE II
SHALL READ AS FOLLOWS:
Special meetings of the Board of Directors
shall be held whenever called by order of
the chairman of the Board of Directors or
of the president or of any vice chairman
of the Board of Directors or of any
director or of any person having the
powers and duties of the chairman of the
Board of Directors, the president or any
vice chairman of the Board of Directors.
SECTION 3. SECTION 12 OF ARTICLE II SHALL READ AS FOLLOWS:
The directors present at any regular or
special meeting called in accordance with
these By-Laws shall constitute a quorum for
the transaction of business at such
meeting, and the action of a majority of
such directors shall be the act of the
Board of Directors, provided, however,
that in the event that only one director
is present at any such meeting no action
except the election of directors shall be
taken until
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at least two additional directors
have been elected and are in
attendance.
ARTICLE XII
RESTRICTIONS ON TRANSFER
The restrictions on transfer of Rights to purchase Common
Stock contained in the Rights Agreement between the Company and
First Chicago Trust Company of New York, as Rights Agent, dated
as of October 25, 1989, are hereby authorized and imposed by these
By-Laws.
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EXHIBIT 12
PHILIP MORRIS COMPANIES INC. AND SUBSIDIARIES
Computation of Ratios of Earnings to Fixed Charges
(dollars in millions)
___________________
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1993 1992 1991 1990 1989
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Earnings before
income taxes and
cumulative effect
of accounting change $ 6,196 $ 8,608 $ 6,971 $ 6,311 $ 5,058
Add (Deduct):
Equity in net earnings of
less than 50% owned
affiliates (164) (107) (95) (90) (62)
Dividends from less than
50% owned affiliates 151 125 72 71 34
Fixed charges 1,716 1,736 1,899 1,941 1,971
Interest capitalized, net
of amortization (13) (3) (11) - (8)
------- ------- ------- ------- -------
Earnings available for
fixed charges $ 7,886 $10,359 $ 8,836 $ 8,233 $ 6,993
======= ======= ======= ======= =======
Fixed charges:
Interest incurred:
Consumer products $ 1,502 $ 1,525 $ 1,711 $ 1,754 $ 1,810
Financial services and
real estate 87 95 83 93 91
------- ------- ------- ------- -------
1,589 1,620 1,794 1,847 1,901
Portion of rent expense
deemed to represent
interest factor 127 116 105 94 70
------- ------- ------- ------- -------
Fixed charges $ 1,716 $ 1,736 $ 1,899 $ 1,941 $ 1,971
======= ======= ======= ======= =======
Ratio of earnings to
fixed charges 4.6 6.0 4.7 4.2 3.5
======= ======= ======= ======= =======
</TABLE>
<PAGE>
EXHIBIT 12
PHILIP MORRIS COMPANIES INC. AND SUBSIDIARIES
Computation of Ratios of Earnings to Fixed Charges (Continued)
(dollars in millions)
___________________
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, 1994 September 30, 1994
------------------ -------------------
<S> <C> <C>
Earnings before income taxes $6,340 $2,147
Add (Deduct):
Equity in net earnings of less than 50% owned
affiliates (148) (26)
Dividends from less than 50% owned
affiliates 153 18
Fixed charges 1,143 378
Interest amortization, net of capitalization 6 -
------ ------
Earnings available for fixed charges $7,494 $2,517
====== ======
Fixed charges:
Interest incurred:
Consumer products $ 989 $ 328
Financial services and real estate 59 19
------ ------
1,048 347
Portion of rent expense deemed to represent
interest factor 95 31
------ ------
Fixed charges $1,143 $ 378
====== ======
Ratio of earnings to fixed charges 6.6 6.7
====== ======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Pages 3-5 of
the Company's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1994 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 354
<SECURITIES> 0
<RECEIVABLES> 5,025
<ALLOWANCES> 173
<INVENTORY> 7,708
<CURRENT-ASSETS> 14,240
<PP&E> 18,017
<DEPRECIATION> 7,152
<TOTAL-ASSETS> 52,882
<CURRENT-LIABILITIES> 13,024
<BONDS> 15,557
<COMMON> 935
0
0
<OTHER-SE> 12,004
<TOTAL-LIABILITY-AND-EQUITY> 52,882
<SALES> 48,624
<TOTAL-REVENUES> 48,624
<CGS> 29,636
<TOTAL-COSTS> 29,636
<OTHER-EXPENSES> 11,707
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 941
<INCOME-PRETAX> 6,340
<INCOME-TAX> 2,707
<INCOME-CONTINUING> 3,633
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,633
<EPS-PRIMARY> 4.17
<EPS-DILUTED> 4.17
</TABLE>
