<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 March 31, 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 April 29, 1994, there were 871,317,178 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
March 31, 1994 and December 31, 1993 3 - 4
Condensed Consolidated Statements of Earnings for the
Three Months Ended March 31, 1994 and 1993 5
Condensed Consolidated Statements of Stockholders'
Equity for the Year Ended December 31, 1993
and the Three Months Ended March 31, 1994 6
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1994 and 1993 7 - 8
Notes to Condensed Consolidated Financial Statements 9 - 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 12 - 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. 18
Item 6. Exhibits and Reports on Form 8-K. 18
Signature 19
</TABLE>
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<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>
March 31, December 31,
1994 1993
--------- ------------
<S> <C> <C>
ASSETS
Consumer products
Cash and cash equivalents $ 209 $ 182
Receivables, net 4,769 3,982
Inventories:
Leaf tobacco 2,956 3,030
Other raw materials 1,823 1,695
Finished product 2,683 2,633
------- -------
7,462 7,358
Other current assets 1,363 1,286
------- -------
Total current assets 13,803 12,808
Property, plant and equipment, at cost 17,152 16,930
Less accumulated depreciation 6,661 6,467
------- -------
10,491 10,463
Goodwill and other intangible assets
(less accumulated amortization of
$2,876 and $2,727) 19,838 19,746
Other assets 2,454 2,529
------- -------
Total consumer products assets 46,586 45,546
Financial services and real estate
Finance assets, net 4,166 4,869
Real estate held for development and sale 482 489
Other assets 291 301
------- -------
Total financial services and
real estate assets 4,939 5,659
------- -------
TOTAL ASSETS $51,525 $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>
March 31, December 31,
1994 1993
--------- ------------
<S> <C> <C>
LIABILITIES
Consumer products
Short-term borrowings $ 202 $ 268
Current portion of long-term debt 1,178 1,738
Accounts payable 2,514 3,137
Accrued taxes, except income taxes 1,276 860
Accrued marketing 1,809 1,619
Other accrued liabilities 3,214 3,492
Income taxes 2,406 1,853
Dividends payable 607 572
------- -------
Total current liabilities 13,206 13,539
Long-term debt 14,730 14,358
Deferred income taxes 422 361
Accrued postretirement health care costs 2,058 2,031
Other liabilities 4,673 4,622
------- -------
Total consumer products liabilities 35,089 34,911
Financial services and real estate
Short-term borrowings 658 929
Long-term debt 878 863
Deferred income taxes 2,722 2,706
Other liabilities 163 169
------- -------
Total financial services and
real estate liabilities 4,421 4,667
------- -------
Total liabilities 39,510 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 16,230 15,718
Currency translation adjustments (607) (711)
------- -------
16,558 15,942
Less cost of treasury stock
(62,557,394 and 58,229,749 shares) 4,543 4,315
------- -------
Total stockholders' equity 12,015 11,627
------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $51,525 $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 Three Months Ended
March 31,
--------------------------
1994 1993
------- -------
<S> <C> <C>
Operating revenues $15,500 $15,189
Cost of sales 6,798 6,630
Excise taxes on products 2,773 2,624
------- -------
Gross profit 5,929 5,935
Marketing, administration and research costs 3,426 3,342
Amortization of goodwill 141 135
------- -------
Operating income 2,362 2,458
Interest and other debt expense, net 319 382
------- -------
Earnings before income taxes
and cumulative effect of
accounting change 2,043 2,076
Provision for income taxes 872 862
------- -------
Earnings before cumulative effect
of accounting change 1,171 1,214
Cumulative effect of change in method of
accounting for postemployment benefits
(net of income tax benefit of $297 million) (477)
------- -------
Net earnings $ 1,171 $ 737
======= =======
Weighted average number of shares 877 883
======= =======
Per share data:
Earnings before cumulative effect of
accounting change $ 1.34 $ 1.38
Cumulative effect of accounting change (.54)
------- -------
Net earnings $ 1.34 $ .84
======= =======
Dividends declared $ .69 $ .65
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
-5-
<PAGE>
Philip Morris Companies Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity
for the Year Ended December 31, 1993 and
the Three Months Ended March 31, 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 1,171 1,171
Exercise of stock options
and issuance of other stock
awards (12) 25 13
Cash dividends declared
$.69 per share (605) (605)
Currency translation adjustments 104 104
Stock purchased (253) (253)
Decrease in unrealized
appreciation on securities (42) (42)
---- ------- ----- ------- -------
Balances, March 31, 1994 $935 $16,230 $(607) $(4,543) $12,015
==== ======= ===== ======= =======
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
Philip Morris Companies Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in millions of dollars)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------
1994 1993
-------- --------
<S> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net earnings - Consumer products $1,135 $ 705
- Financial services and real estate 36 32
------ ------
Net earnings 1,171 737
Adjustments to reconcile net earnings to
operating cash flows:
Consumer products
Cumulative effect of accounting change 774
Depreciation and amortization 398 397
Deferred income tax provision (benefit) 25 (283)
Gain on sale of business (3)
Cash effects of changes, net of the effects
from acquired and divested companies:
Receivables, net (780) (452)
Inventories (73) (155)
Accounts payable (634) (175)
Income taxes 531 432
Other working capital items 133 (274)
Other 65 95
Financial services and real estate
Deferred income tax provision 42 70
Decrease in real estate receivables 5 15
Decrease (increase) in real estate held for
development and sale 6 (13)
Other (15) (33)
------ ------
Net cash provided by operating activities 874 1,132
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Consumer products
Capital expenditures (266) (351)
Purchases of businesses, net of acquired cash (25) (638)
Proceeds from sales of businesses 56 51
Other 23 46
Financial services and real estate
Investments in finance assets (48) (94)
Proceeds from other finance assets 711 395
------ ------
Net cash provided by (used in)
investing activities 451 (591)
------ ------
Net cash provided by operating and
investing activities $1,325 $ 541
------ ------
</TABLE>
See notes to condensed consolidated financial statements.
Continued
-7-
<PAGE>
Philip Morris Companies Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (continued)
(in millions of dollars)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------
1994 1993
-------- --------
<S> <C> <C>
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Consumer products
Net issuance of short-term borrowings $ 354 $ 1,367
Long-term debt proceeds 20 949
Long-term debt repaid (663) (462)
Financial services and real estate
Net (repayment) issuance of short-term borrowings (271) 67
Long-term debt repaid (55)
Purchase of treasury stock (177) (1,218)
Dividends paid (570) (581)
Issuance of shares 10 16
Other (3)
------- -------
Net cash provided by (used in)
financing activities (1,300) 83
Effect of exchange rate changes on cash and
cash equivalents 2 (5)
------- -------
Cash and cash equivalents:
Increase 27 619
Balance at beginning of period 182 1,021
------- -------
Balance at end of period $ 209 $ 1,640
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
-8-
<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. First quarter results should not be considered indicative of full-
year 1994 results. See Management's Discussion and Analysis on page 12.
These statements should be read in conjunction with the consolidated
financial statements and related notes which are incorporated by reference to
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.
Continued
-9-
<PAGE>
Philip Morris Companies Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
Developments in smoking and health litigation during and subsequent to the
first quarter of 1994 are summarized below.
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 allegations. The defendants have filed a request
for review of this ruling by the full panel of judges of this appellate court.
In May 1994, an action was filed in a Florida State Court against the
leading United States tobacco manufacturers and others, including the Company,
by plaintiffs alleging injury and purporting to represent a class of all United
States citizens and residents who claim to be addicted, or who claim to be the
legal survivors of persons who were addicted, to tobacco products. Plaintiffs
cited the Florida appellate reversal discussed above in support of their
allegations of class action status.
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 alleging that they are
addicted, or are the legal survivors of persons who were addicted, to tobacco
products. 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. The complaints allege that the cigarette manufacturers manipulated the
levels of nicotine in their tobacco products to make such products addictive.
Also 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 assert a violation of the Racketeer Influenced
Corrupt Organizations Act and claim 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 have agreed to dismiss the
separate second-filed case.
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.
In May 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 PM Inc., by plaintiffs alleging injury and
purporting to represent a class of African American or Black American residents
or domiciliaries of the United States who claim that they are addicted to
tobacco products or that they were not warned of the alleged special and unique
health risks posed to African Americans by tobacco products or that they were
not warned of the ingredients of tobacco products.
Continued
-10-
<PAGE>
Philip Morris Companies Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
(Unaudited)
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 one of these cases, 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 remaining two cases, 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.
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.
The Company is contingently liable for payment of (Pounds)610 million notes
maturing on October 15, 1994, sold with recourse in 1989.
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.
However, litigation is subject to many uncertainties and the Company and PM Inc.
are unable to predict the outcome of this matter.
-11-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
________________________________________________________________________
Operating Results
- -----------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
--------------------------------------
Operating Revenues Operating Income
------------------ ----------------
(in millions)
1994 1993 1994 1993
------- ------- -------- -------
<S> <C> <C> <C> <C>
Tobacco $ 6,954 $ 6,696 $1,560 $1,692
Food 7,419 7,426 880 861
Beer 1,030 974 103 93
Financial services
and real estate 97 93 54 48
Amortization of goodwill (141) (135)
Unallocated corporate
expenses (94) (101)
------- ------- ------ ------
Total $15,500 $15,189 $2,362 $2,458
======= ======= ====== ======
</TABLE>
Operating revenues of $15.5 billion for the first quarter of 1994 increased
$311 million (2.0%) and operating income for the first quarter of 1994 decreased
$96 million (3.9%) over the comparable 1993 period. Operating income in all
operating companies increased over the comparable 1993 period, except in
domestic tobacco which decreased 24.5% from 1993 as a result of lower domestic
tobacco pricing. For the reasons discussed below, first quarter results should
not be taken as indicative of full-year 1994 results.
The effective tax rate in the first quarter of 1994 was 42.7% as compared
to 41.5% in the comparable 1993 period. The increase is primarily due to the new
federal income tax law, which became effective during the third quarter of 1993.
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 first
quarter 1993 earnings before cumulative effect of accounting change.
In April 1994, the Company announced that it was studying the possibility
of separating its food and tobacco businesses and that it would make an
appropriate announcement when, and if, any further disclosure is warranted.
-12-
<PAGE>
Operating Results by Business Segment
_____________________________________
Tobacco
- -------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
--------------------------------------
Operating Revenues Operating Income
------------------ ----------------
(in millions)
1994 1993 1994 1993
------- ------- -------- -------
<S> <C> <C> <C> <C>
Domestic tobacco $2,497 $2,543 $ 769 $1,018
International tobacco 4,457 4,153 791 674
------ ------ ------ ------
Total $6,954 $6,696 $1,560 $1,692
====== ====== ====== ======
</TABLE>
For several years, the tobacco industry has faced a number of concerns
which have affected volume, operating revenues and operating income. In the
first quarter of 1994 and subsequently, the industry, including PM Inc.,
witnessed the proliferation of many of these concerns and the emergence of new
issues. 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 the diminishing social acceptance of
smoking. See Note 2 to the Condensed Consolidated Financial Statements for
discussion of contingencies.
Domestic tobacco. During the first quarter of 1994, domestic cigarette
industry volume (based on shipments) continued to shift from the discount
segment to the premium segment. The premium and discount segments accounted for
approximately 66% and 34%, respectively, of the domestic cigarette industry in
the first quarter of 1994, compared with 61% and 39%, respectively, in the
comparable period of 1993. The actions taken by PM Inc. in response to the
highly price sensitive market environment are discussed below.
PM Inc.'s domestic volume (based on shipments) was 49.7 billion units for
the first quarter of 1994, an increase of 12.5% over the comparable 1993 period,
primarily due to a change in distributor buying patterns. This compared with an
industry increase of 8.4%. PM Inc.'s market share for the first quarter of 1994
was 43.1%, an increase of 1.5 share points from the comparable 1993 period. In
the premium segment, volume in PM Inc.'s brands increased 24.5% in the quarter,
compared with a 17.8% increase for the industry, resulting in a market share
gain of 2.8 share points to 51.4%. The Marlboro family's volume was up 7.2
billion units (32.0%) for a 25.9% share of the total industry, as compared with
a 21.3% share in the first quarter of 1993. In the discount segment, the
Company's shipments decreased 17.7% to 10.4 billion units in the first quarter
of 1994, resulting in a decrease of 3.7 share points in this segment to 26.7%.
Since the implementation of the strategy announced on April 2, 1993 and
subsequent actions taken by PM Inc. (see page 14), Nielsen retail sales data
indicate a share gain for PM Inc. and Marlboro, growing from their low point of
41.6% and 22.0%, respectively, in March 1993 to 45.6% and 27.4%, respectively,
in March 1994. Additionally, retail share of PM Inc.'s other premium brands, as
a group, climbed to 9.1% in March 1994, up from 8.3% in August 1993, when PM
Inc. lowered their wholesale list prices. (March 1993 retail market shares have
been restated 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.)
-13-
<PAGE>
During the quarter, the Company's domestic tobacco operating revenues
decreased 1.8% due primarily to price decreases ($528 million), partially offset
by volume increases ($309 million) and favorable product mix ($170 million).
Operating income for the first quarter of 1994 decreased 24.5% from the
comparable 1993 period, due primarily to price decreases, net of cost decreases
($523 million) and higher marketing expenses ($98 million), partially offset by
volume increases ($204 million) and favorable product mix.
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. 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 proven successful,
with PM Inc. recording impressive share and volume gains for Marlboro and its
other premium brands since lowering prices. The overall effect of these price
changes has been lower profit margins on sales of premium brands that will not
be offset by higher volume. These lower margins are expected to continue until
such time as there are sustained improvements in the competitive environment.
As part of the U.S. federal budget passed in August 1993, Congress has
required, effective January 1, 1994, that domestic cigarette manufacturers use
at least 75% American-grown tobacco, which is more expensive than imported
tobacco, in their products. Due to the high content of American-grown tobacco
(approximately 65% in 1993) already used in PM Inc.'s products and in those
exported by PM International, this new requirement has not had, and is not
expected to have, a material adverse impact on tobacco results of operations.
Currently, the federal excise tax on cigarettes is $12 per thousand ($.24
per pack). As part of its health care reform proposal, the federal
administration has included a $37.50 per thousand ($.75 per pack) increase in
the federal excise tax effective October 1, 1994. In March 1994, the Health
Subcommittee of the Ways and Means Committee of the House of Representatives
voted to recommend to the Committee an increase of $62.50 per thousand ($1.25
per pack) in the federal excise tax on cigarettes. The matter now will go to the
full Committee for consideration. It is anticipated that the higher excise
taxes, if implemented, would result in volume declines for PM Inc. and the
cigarette industry and might cause shifts between the premium and discount
segments. In addition, legislation or other governmental action is proposed
periodically that not only would increase excise taxes but would further curtail
the advertisement and use of tobacco products.
In the first quarter 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 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.
It is not possible to determine what, if any, governmental legislation or
regulations will be adopted relating to cigarettes or to smoking or to predict
the effect of such regulations upon PM Inc. 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.
-14-
<PAGE>
International tobacco. Operating revenues for the first quarter of 1994
increased 7.3% due primarily to favorable volume/mix ($177 million), price
increases ($83 million) and higher foreign excise taxes ($73 million), partially
offset by currency movement ($58 million). Total international unit volume,
including U.S. exports, increased 14.8 billion units (12.3%) to 135.8 billion
units. Volume gains were recorded in most markets, including Germany, Japan,
Central and Eastern Europe, the Middle East, Argentina and Brazil. In Italy,
volume continued to grow, excluding the effect of an inventory replenishment in
early 1993 following a union strike. Volume declined in Turkey due to the
economic situation in that country. The Company's market share trends continued
to be positive in its major international markets, with record shares achieved
in Germany, Italy, France, Finland, the Czech Republic, Japan, Singapore,
Argentina and the Dominican Republic. Marlboro's international volume increased
6.1% to 67.8 billion units. International volume also continued to grow for the
Company's other U.S.-heritage brands, such as Virginia Slims, Parliament, L&M
and Chesterfield. Operating income for the first quarter of 1994 increased
17.4% from the comparable 1993 period, due primarily to price increases and
lower costs (aggregating $96 million) and volume/mix increases ($58 million),
partially offset by higher marketing expenses ($26 million) and currency
movement ($13 million).
Food
- ----
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
--------------------------------------
Operating Revenues Operating Income
------------------ ----------------
(in millions)
1994 1993 1994 1993
------- ------- -------- -------
<S> <C> <C> <C> <C>
North American food $5,191 $5,257 $638 $621
International food 2,228 2,169 242 240
------ ------ ---- ----
Total $7,419 $7,426 $880 $861
====== ====== ==== ====
</TABLE>
North American food. Operating revenues for the first quarter of 1994
decreased 1.3% due primarily to the impact of dispositions ($208 million),
partially offset by price increases ($83 million) and volume increases ($58
million). Excluding the dispositions of certain businesses in 1993, volume rose
slightly in the first quarter of 1994. Volume gains were recorded in cheese,
bakery, cereals, desserts, beverages, processed meats and pizza. In the
beverage business, price reductions on Kool-Aid lowered first quarter 1994
operating income but resulted in market share gains. Coffee volume declined due
to competitive pressures, but operating income was up strongly primarily on
productivity gains. Operating income for the first quarter of 1994 increased
2.7% over the comparable 1993 period, due primarily to price increases ($83
million), volume increases ($10 million) and the sale of underperforming
businesses ($10 million), partially offset by higher product costs ($87
million).
In November 1992, the U.S. Food and Drug Administration issued new labeling
requirements for food products, effective May 1994. Compliance with the new
requirements will not have a material adverse impact on the Company's results of
operations.
-15-
<PAGE>
International food. Operating revenues for the first quarter of 1994
increased 2.7% due primarily to the impact of acquisitions ($244 million),
partially offset by currency movement ($194 million). Volume was up in the first
quarter of 1994, primarily as a result of acquisitions in the Company's
confectionery business. The Company continued to build its business in Central
Europe, achieving volume growth in both coffee and confectionery in the first
quarter of 1994. Operating income for the first quarter of 1994 increased
slightly from the comparable 1993 period, due primarily to the impact of
acquisitions ($26 million), partially offset by currency movement ($27 million).
Beer
____
Operating revenues for the first quarter of 1994 increased $56 million
(5.7%) from the comparable 1993 period. This increase was due primarily to the
acquisition of Molson Breweries U.S.A. Inc. During the second quarter of 1993,
Miller Brewing Company ("Miller") acquired a 20% equity interest in Molson
Breweries in Canada and 100% of Molson Breweries U.S.A. Unit volume (based on
shipments) increased 5.1% in the first quarter of 1994, compared with an
estimated 1.1% volume gain for the U.S. malt beverage industry. Miller's new
ice-brewed products -- Lite Ice, Icehouse and Molson Ice -- showed strong
results in the quarter. Miller Genuine Draft volume was up, as were shipments of
Miller High Life in markets where it was successfully repositioned with near-
premium pricing. Miller Lite volume was down. Operating income for the first
quarter of 1994 increased $10 million (10.8%) from the comparable 1993 period,
due primarily to productivity savings resulting from restructuring and workforce
reductions.
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.
Financial Services and Real Estate
__________________________________
During the first quarter of 1994, operating revenues and operating income
from financial services and real estate operations increased 4.3% and 12.5%,
respectively, from the first quarter of 1993. First quarter 1994 operating
income from financial services increased 12.1%, due primarily to gains on sales
of marketable securities. Operating income from real estate operations in 1994
increased from 1993 levels, reflecting increased sales in Colorado.
Cash Provided and Used
______________________
Net Cash Provided by Operating Activities
_________________________________________
During the first quarter of 1994, cash provided by operating activities was
$874 million, compared with $1.1 billion in the first quarter of 1993. The
decrease was due primarily to more cash used for working capital items.
Net Cash Provided By Investing Activities
_________________________________________
Cash provided by investing activities for the first quarter of 1994 was
$451 million, compared with cash used in investing activities of $591 million
for the comparable 1993 period. The change reflects a $613 million decrease in
cash used for acquisitions and a $362 million increase in cash provided by net
proceeds from finance assets. Capital expenditures were $266 million in the
first quarter of 1994, of which 59% related to food operations and 35% related
to tobacco operations.
-16-
<PAGE>
Net Cash Used in Financing Activities
_____________________________________
During the first quarter of 1994, the Company's cash used in financing
activities was $1.3 billion, compared with $83 million provided by financing
activities during the first quarter of 1993. Cash used in financing activities
for the first quarter of 1994 was used primarily for consumer products' net
repayment of long-term debt ($643 million), cash dividends paid ($570 million),
financial services' net repayment of short-term borrowings ($271 million) and
the repurchase of common stock ($177 million), partially offset by consumer
products' net issuance of short-term borrowings ($354 million).
At March 31, 1994, the Company had consumer products short-term borrowings
of $2.9 billion, $2.7 billion of which was reclassified as long-term debt based
upon the Company's intent and ability to refinance such debt under a $8 billion
revolving bank credit agreement that expires in 1998. At December 31, 1993, the
Company had consumer products short-term borrowings of $2.6 billion, $2.3
billion of which was reclassified as long-term debt. The Company expects to
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.
At March 31, 1994, the Company's ratio of consumer products debt to total
equity was 1.34, down from 1.41 at December 31, 1993. The change reflects a
decrease in consumer products debt, as well as an increase in stockholders'
equity. The increase in stockholders' equity was due primarily to net earnings
in the first quarter of 1994 and favorable movement in the currency translation
adjustments account, partially offset by dividends declared and the repurchase
of common stock.
The Company's ratio of consumer products debt to total equity was 1.58 at
March 31, 1993. The change from March 31, 1993 to March 31, 1994 reflects lower
consumer products debt ($2.0 billion) and increased total stockholders' equity
($581 million).
Dividends paid in the first quarter of 1994 decreased 1.9% over the
comparable period of 1993, reflecting a lower number of outstanding shares of
stock due to the Company's share repurchase program. On February 23, 1994, the
Board of Directors increased the Company's regular quarterly dividend 6.2% to
$.69 per common share. The new annualized dividend rate is $2.76 per share.
During the first quarter of 1994, the Company repurchased 4.7 million
shares of its common stock at an aggregate cost of $253.2 million (average cost
of $53.87 per share). 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 $3.0 billion for such purchases. Through
March 31, 1994, cumulative purchases under the program totaled 56.6 million
shares at a cost of $4.1 billion. On February 23, 1994, the Board of Directors
extended through December 30, 1994, the existing authority to repurchase the
Company's shares, which was scheduled to expire in May 1994.
Contingencies
_____________
See Note 2 to the Condensed Consolidated Financial Statements for
discussion of contingencies.
-17-
<PAGE>
Part II - OTHER INFORMATION
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.
(b) Reports on Form 8-K. The Registrant filed no reports on Form 8-K during
the quarter for which this report is filed.
___________
-18-
<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 May 16, 1994
<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.
April 21, 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,
-3-
<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
eighteen (18).
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,
-4-
<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.
-5-
<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.
-6-
<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.
-7-
<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.
-8-
<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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<PAGE>
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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<PAGE>
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 (continued)
(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 changes $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
(Dollars in millions)
___________________
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1994
------------------
<S> <C>
Earnings before income taxes $2,043
Add (Deduct):
Equity in net earnings of less than 50% owned
affiliates (63)
Dividends from less than 50% owned
affiliates 71
Fixed charges 388
Interest capitalized, net of amortization (2)
------
Earnings available for fixed charges $2,437
======
Fixed charges:
Interest incurred:
Consumer products $ 337
Financial services and real estate 19
------
356
Portion of rent expense deemed to represent
interest factor 32
------
Fixed charges $ 388
======
Ratio of earnings to fixed charges 6.3
======
</TABLE>
