-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, I3per6qqGeNf7ezM8vg8AwwJtNM1UfnAb6lxcix1Jd2ZcUZu0ahXYqpfJZpu4Vww IhZaATGV5aLYJ91+voYhCQ== 0000950130-94-000785.txt : 19940517 0000950130-94-000785.hdr.sgml : 19940517 ACCESSION NUMBER: 0000950130-94-000785 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHILIP MORRIS COMPANIES INC CENTRAL INDEX KEY: 0000764180 STANDARD INDUSTRIAL CLASSIFICATION: 2111 IRS NUMBER: 133260245 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08940 FILM NUMBER: 94528893 BUSINESS ADDRESS: STREET 1: 120 PARK AVE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 212-880-38 10-Q 1 QUARTERLY REPORT FOR 3/31/94 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. PHILIP MORRIS COMPANIES INC. TABLE OF CONTENTS
Page No. 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
-2- PART I - FINANCIAL INFORMATION Item 1. Financial Statements. Philip Morris Companies Inc. and Subsidiaries Condensed Consolidated Balance Sheets (in millions of dollars) (Unaudited)
March 31, December 31, 1994 1993 --------- ------------ 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 ======= =======
See notes to condensed consolidated financial statements. Continued -3- Philip Morris Companies Inc. and Subsidiaries Condensed Consolidated Balance Sheets (continued) (in millions of dollars) (Unaudited)
March 31, December 31, 1994 1993 --------- ------------ 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 ======= =======
See notes to condensed consolidated financial statements. -4- Philip Morris Companies Inc. and Subsidiaries Condensed Consolidated Statements of Earnings (in millions of dollars, except per share data) (Unaudited)
For the Three Months Ended March 31, -------------------------- 1994 1993 ------- ------- 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 ======= =======
See notes to condensed consolidated financial statements. -5- 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)
Earnings Total Reinvested Currency Cost of Stock- Common in the Translation Treasury holders' Stock Business Adjustments Stock Equity ------ ---------- ----------- -------- -------- 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 ==== ======= ===== ======= =======
See notes to condensed consolidated financial statements. -6- Philip Morris Companies Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (in millions of dollars) (Unaudited)
For the Three Months Ended March 31, -------------------------- 1994 1993 -------- -------- 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 ------ ------
See notes to condensed consolidated financial statements. Continued -7- Philip Morris Companies Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (continued) (in millions of dollars) (Unaudited)
For the Three Months Ended March 31, -------------------------- 1994 1993 -------- -------- 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 ======= =======
See notes to condensed consolidated financial statements. -8- 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- 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- 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- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. ________________________________________________________________________ Operating Results - -----------------
For the Three Months Ended March 31, -------------------------------------- Operating Revenues Operating Income ------------------ ---------------- (in millions) 1994 1993 1994 1993 ------- ------- -------- ------- 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 ======= ======= ====== ======
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- Operating Results by Business Segment _____________________________________ Tobacco - -------
For the Three Months Ended March 31, -------------------------------------- Operating Revenues Operating Income ------------------ ---------------- (in millions) 1994 1993 1994 1993 ------- ------- -------- ------- 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 ====== ====== ====== ======
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- 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- 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 - ----
For the Three Months Ended March 31, -------------------------------------- Operating Revenues Operating Income ------------------ ---------------- (in millions) 1994 1993 1994 1993 ------- ------- -------- ------- North American food $5,191 $5,257 $638 $621 International food 2,228 2,169 242 240 ------ ------ ---- ---- Total $7,419 $7,426 $880 $861 ====== ====== ==== ====
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- 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- 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- 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- 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 EX-3.2 2 BY-LAWS OF PHILIP MORRIS 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 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- 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- 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- 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- 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- 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- 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- 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 -9- 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 -10- 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. -11- 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 -12- 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. -13- 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 -14- 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. -15- EX-12 3 COMPUTATION OF RATIOS EXHIBIT 12 PHILIP MORRIS COMPANIES INC. AND SUBSIDIARIES Computation of Ratios of Earnings to Fixed Charges (continued) (Dollars in millions) ___________________
Years Ended December 31, ---------------------------------------------- 1993 1992 1991 1990 1989 ------ ------ ------ ------ ------ 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 ====== ======= ====== ====== ======
EXHIBIT 12 PHILIP MORRIS COMPANIES INC. AND SUBSIDIARIES Computation of Ratios of Earnings to Fixed Charges (Dollars in millions) ___________________
Three Months Ended March 31, 1994 ------------------ 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 ======
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