-----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, ItLbyGxEtoBI6kMJKZfJDj3vs1cMWkn/3n+qqm14qk3CMEG3Bhi2BOzO1jTd1d9H oSOWWBjFkd6or9aoLIT2wA== 0000950130-94-001626.txt : 19941116 0000950130-94-001626.hdr.sgml : 19941116 ACCESSION NUMBER: 0000950130-94-001626 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: NYSE 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: 94559873 BUSINESS ADDRESS: STREET 1: 120 PARK AVE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 212-880-3870 MAIL ADDRESS: STREET 1: 120 PARK AVE CITY: NEW YORK STATE: NY ZIP: 10017 10-Q 1 QUARTERLY REPORT ON FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1994 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-8940 Philip Morris Companies Inc. ________________________________________________________________________________ (Exact name of registrant as specified in its charter) Virginia 13-3260245 ________________________________________________________________________________ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 120 Park Avenue, New York, New York 10017 ________________________________________________________________________________ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 880-5000 ______________________________ ________________________________________________________________________________ Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ________ ______ At October 31, 1994, there were 859,394,687 shares outstanding of the registrant's common stock, par value $1 per share. PHILIP MORRIS COMPANIES INC. TABLE OF CONTENTS
Page No. PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited). Condensed Consolidated Balance Sheets as at September 30, 1994 and December 31, 1993 3 - 4 Condensed Consolidated Statements of Earnings for the Nine Months Ended September 30, 1994 and 1993 5 Three Months Ended September 30, 1994 and 1993 6 Condensed Consolidated Statements of Stockholders' Equity for the Year Ended December 31, 1993 and the Nine Months Ended September 30, 1994 7 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1994 and 1993 8 - 9 Notes to Condensed Consolidated Financial Statements 10 - 14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 15 - 24 PART II - OTHER INFORMATION Item 1. Legal Proceedings. 25 Item 6. Exhibits and Reports on Form 8-K. 25 Signature 26
-2- PART I - FINANCIAL INFORMATION Item 1. Financial Statements. Philip Morris Companies Inc. and Subsidiaries Condensed Consolidated Balance Sheets (in millions of dollars) (Unaudited)
September 30, December 31, 1994 1993 ------------- ------------ ASSETS CONSUMER PRODUCTS Cash and cash equivalents $ 354 $ 182 Receivables, net 4,852 3,982 Inventories: Leaf tobacco 2,692 3,030 Other raw materials 2,107 1,695 Finished product 2,909 2,633 ------- ------- 7,708 7,358 Other current assets 1,326 1,286 ------- ------- Total current assets 14,240 12,808 Property, plant and equipment, at cost 18,017 16,930 Less accumulated depreciation 7,152 6,467 ------- ------- 10,865 10,463 Goodwill and other intangible assets (less accumulated amortization of $3,209 and $2,727) 19,909 19,746 Other assets 2,636 2,529 ------- ------- Total consumer products assets 47,650 45,546 FINANCIAL SERVICES AND REAL ESTATE Finance assets, net 4,516 4,869 Real estate held for development and sale 403 489 Other assets 313 301 ------- ------- Total financial services and real estate assets 5,232 5,659 ------- ------- TOTAL ASSETS $52,882 $51,205 ======= =======
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)
September 30, December 31, 1994 1993 ------------- ------------ LIABILITIES CONSUMER PRODUCTS Short-term borrowings $ 125 $ 268 Current portion of long-term debt 757 1,738 Accounts payable 2,719 3,137 Accrued taxes, except income taxes 1,263 860 Accrued marketing 2,291 1,619 Other accrued liabilities 3,280 3,492 Income taxes 1,872 1,853 Dividends payable 717 572 ------- ------- Total current liabilities 13,024 13,539 Long-term debt 14,850 14,358 Deferred income taxes 495 361 Accrued postretirement health care costs 2,105 2,031 Other liabilities 4,841 4,622 ------- ------- Total consumer products liabilities 35,315 34,911 FINANCIAL SERVICES AND REAL ESTATE Short-term borrowings 881 929 Long-term debt 707 863 Deferred income taxes 2,899 2,706 Other liabilities 141 169 ------- ------- Total financial services and real estate liabilities 4,628 4,667 ------- ------- Total liabilities 39,943 39,578 Contingencies (Note 2) STOCKHOLDERS' EQUITY Common stock, par value $1.00 per share (935,320,439 shares issued) 935 935 Earnings reinvested in the business 17,175 15,718 Currency translation adjustments (71) (711) ------- ------- 18,039 15,942 Less cost of treasury stock (74,135,297 and 58,229,749 shares) 5,100 4,315 ------- ------- Total stockholders' equity 12,939 11,627 ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $52,882 $51,205 ======= =======
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 Nine Months Ended September 30, ------------------------- 1994 1993 ------- ------- Operating revenues $48,624 $46,187 Cost of sales 20,944 20,167 Excise taxes on products 8,692 7,882 ------- ------- Gross profit 18,988 18,138 Marketing, administration and research costs 11,274 11,088 Amortization of goodwill 433 419 ------- ------- Operating income 7,281 6,631 Interest and other debt expense, net 941 1,068 ------- ------- Earnings before income taxes and cumulative effect of accounting change 6,340 5,563 Provision for income taxes 2,707 2,334 ------- ------- Earnings before cumulative effect of accounting change 3,633 3,229 Cumulative effect of change in method of accounting for postemployment benefits (net of income tax benefit of $297 million) (477) ------- ------- Net earnings $ 3,633 $ 2,752 ======= ======= Weighted average number of shares 871 879 ======= ======= Per share data: Earnings before cumulative effect of accounting change $ 4.17 $ 3.68 Cumulative effect of accounting change (.54) ------- ------- Net earnings $ 4.17 $ 3.14 ======= ======= Dividends declared $ 2.205 $ 1.95 ======= =======
See notes to condensed consolidated financial statements. -5- 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 September 30, -------------------------- 1994 1993 ------- ------- Operating revenues $16,710 $15,209 Cost of sales 7,094 6,658 Excise taxes on products 3,037 2,625 ------- ------- Gross profit 6,579 5,926 Marketing, administration and research costs 3,975 3,734 Amortization of goodwill 147 138 ------- ------- Operating income 2,457 2,054 Interest and other debt expense, net 310 343 ------- ------- Earnings before income taxes 2,147 1,711 Provision for income taxes 917 744 ------- ------- Net earnings $ 1,230 $ 967 ======= ======= Weighted average number of shares 865 877 ======= ======= Per share data: Net earnings $ 1.42 $ 1.11 ======= ======= Dividends declared $ .825 $ .65 ======= =======
See notes to condensed consolidated financial statements. -6- Philip Morris Companies Inc. and Subsidiaries Condensed Consolidated Statements of Stockholders' Equity for the Year Ended December 31, 1993 and the Nine Months Ended September 30, 1994 (in millions of dollars, except per share data) (Unaudited)
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 3,633 3,633 Exercise of stock options and issuance of other stock awards (217) 286 69 Cash dividends declared $2.205 per share (1,919) (1,919) Currency translation adjustments 640 640 Stock purchased (1,071) (1,071) Decrease in unrealized appreciation on securities (40) (40) ------ ------- ----- ------- ------- Balances, September 30, 1994 $ 935 $17,175 $ (71) $(5,100) $12,939 ====== ======= ===== ======= =======
See notes to condensed consolidated financial statements. -7- Philip Morris Companies Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (in millions of dollars) (Unaudited)
For the Nine Months Ended September 30, ------------------------- 1994 1993 ------- ------- CASH PROVIDED BY OPERATING ACTIVITIES Net earnings - Consumer products $ 3,531 $ 2,678 - Financial services and real estate 102 74 ------- ------- Net earnings 3,633 2,752 Adjustments to reconcile net earnings to operating cash flows: CONSUMER PRODUCTS Cumulative effect of accounting change 774 Depreciation and amortization 1,243 1,197 Deferred income tax provision 151 (119) Gains on sales of businesses (5) Cash effects of changes, net of the effects from acquired and divested companies: Receivables, net (721) (471) Inventories (80) 92 Accounts payable (490) 70 Income taxes 21 60 Other working capital items 382 (252) Other 237 236 FINANCIAL SERVICES AND REAL ESTATE Deferred income tax provision 218 332 (Increase) decrease in real estate receivables (45) 60 Decrease (increase) in real estate held for development and sale 85 (26) Other (70) (67) ------- ------- Net cash provided by operating activities before interest payment on zero coupon bonds 4,564 4,633 Interest payment on zero coupon bonds - financial services and real estate (156) ------- ------- Net cash provided by operating activities 4,408 4,633 ------- ------- CASH USED IN INVESTING ACTIVITIES CONSUMER PRODUCTS Capital expenditures (1,000) (1,124) Purchases of businesses, net of acquired cash (153) (2,628) Proceeds from sales of businesses 100 55 Other (1) (8) FINANCIAL SERVICES AND REAL ESTATE Investments in finance assets (418) (513) Proceeds from finance assets 804 572 ------- ------- Net cash used in investing activities $ (668) $(3,646) ------- -------
See notes to condensed consolidated financial statements. Continued -8- Philip Morris Companies Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (continued) (in millions of dollars) (Unaudited)
For the Nine Months Ended September 30, ------------------------- 1994 1993 -------- -------- CASH USED IN FINANCING ACTIVITIES CONSUMER PRODUCTS Net issuance of short-term borrowings $ 538 $ 2,201 Long-term debt proceeds 77 1,000 Long-term debt repaid (1,399) (1,656) FINANCIAL SERVICES AND REAL ESTATE Net (repayment) issuance of short-term borrowings (48) 75 Long-term debt repaid (44) (290) Purchase of treasury stock (1,009) (1,218) Dividends paid (1,774) (1,723) Issuance of shares 40 28 Other (5) (37) ------- ------- Net cash used in financing activities (3,624) (1,620) Effect of exchange rate changes on cash and cash equivalents 56 (33) ------- ------- Cash and cash equivalents: Increase (decrease) during period 172 (666) Balance at beginning of period 182 1,021 ------- ------- Balance at end of period $ 354 $ 355 ======= =======
See notes to condensed consolidated financial statements. -9- Philip Morris Companies Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1. Accounting Policies: _____________________________ The interim condensed consolidated financial statements of Philip Morris Companies Inc. (the "Company") are unaudited. It is the opinion of the Company's management that all adjustments necessary for a fair statement of the interim results presented have been reflected therein. All such adjustments were of a normal recurring nature. Operating revenues and net earnings for any interim period are not necessarily indicative of results that may be expected for the entire year. See Management's Discussion and Analysis on page 15. These statements should be read in conjunction with the consolidated financial statements and related notes which are incorporated by reference in the Company's annual report to stockholders for the year ended December 31, 1993. Balance sheet accounts are segregated by two broad types of business. Consumer products assets and liabilities are classified as either current or non-current, whereas financial services and real estate assets and liabilities are unclassified, in accordance with respective industry practices. Note 2. Contingencies: _______________________ There is litigation pending against the leading United States cigarette manufacturers alleging injury resulting from cigarette smoking or exposure to cigarette smoking. In this litigation, plaintiffs seek compensatory and, in some cases, punitive damages. The Company and Philip Morris Incorporated ("PM Inc."), a wholly-owned subsidiary of the Company, are defendants in some of these cases. In certain of these cases, individuals seek recovery for personal injuries allegedly caused by cigarette smoking. Among the defenses raised by defendants to certain of this litigation is preemption by the Federal Cigarette Labeling and Advertising Act, as amended (the "Act"). On June 24, 1992, the United States Supreme Court held that the Act, as enacted in 1965, does not preempt common law damage claims but that the Act, as amended in 1969, preempts claims arising after 1969 against cigarette manufacturers "based on failure to warn and the neutralization of federally mandated warnings to the extent that those claims rely on omissions or inclusions in advertising or promotions." The Court also held that the 1969 Act does not preempt claims based on express warranty, fraudulent misrepresentation or conspiracy. The Court also held that claims for fraudulent concealment were preempted except "insofar as those claims relied on a duty to disclose...facts through channels of communication other than advertising or promotion." (The Court did not consider whether such common law damage claims were valid under state law.) The Court's decision was announced by a plurality opinion. The effect of the decision on pending and future cases will be the subject of further proceedings in the lower federal and state courts. Additional similar litigation could be encouraged if legislative proposals to eliminate the federal preemption defense, pending in Congress since 1991, were enacted. It is not possible to predict whether any such legislation will be enacted. Certain developments in smoking and health litigation during 1994 are summarized below. Continued -10- Philip Morris Companies Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (continued) (Unaudited) In March 1994, a Florida state appellate court reversed a lower court ruling and reinstated plaintiffs' class action allegations in a purported class action against the leading United States cigarette manufacturers, in which certain flight attendants, claiming to represent a class of 60,000 individuals, alleged personal injury caused by exposure to environmental tobacco smoke ("ETS") aboard aircraft. The appellate court ordered the trial court to hold further hearings on the class action allegations. The defendants filed a request for review of this ruling by the full panel of the appellate court. The request was denied. In October 1994, defendants asked the Florida Supreme Court to review the March appellate court decision. Concurrently, plaintiffs have served notice of a hearing in the trial court for late November 1994 attempting to secure class certification. In May 1994, an action was filed in a Florida state court against the leading United States tobacco manufacturers and others by plaintiffs alleging injury and purporting to represent a class of certain smokers, certain former smokers and their heirs. Plaintiffs cited the Florida appellate reversal discussed above in support of their allegations of class action status. Subsequently, the Company was voluntarily dismissed from this action, which otherwise continues against the tobacco manufacturers, including PM Inc. In October 1994, the trial court granted plaintiffs' motion for class certification. The class, as certified, comprises "all United States citizens and residents and their survivors who have...suffered, presently suffer, or who have died from diseases and medical conditions caused by their addiction to cigarettes that contain nicotine." Defendants, including PM Inc., will file a notice of appeal in the Florida Third District Court of Appeals. In May 1994, the State of Florida enacted a statute which purports to abolish affirmative defenses in actions brought by the state seeking reimbursement of Medicaid costs. The statute purports in such actions to adopt a market share liability theory, to permit the introduction of statistical evidence to prove causation, and to allow the state not to identify the individual Medicaid recipients who received the benefits at issue in such action. In June 1994, PM Inc. and others filed suit in Florida state court challenging the constitutionality of the statute. In March 1994, an action was filed in the United States District Court for the Eastern District of Louisiana against the leading United States cigarette manufacturers and others, including the Company, seeking certification of a class action on behalf of all United States residents who allege that they are addicted, or are the legal survivors of persons who were addicted, to tobacco products. Plaintiffs allege that the cigarette manufacturers manipulated the levels of nicotine in their tobacco products to make such products addictive. In April 1994, a motion for intervention was filed by plaintiffs who have never smoked but claim injury, on behalf of a purported class, from their exposure to ETS resulting from the alleged addiction of smokers to tobacco products. This motion was denied in June 1994. Plaintiffs' motion for class certification is scheduled for hearing in December 1994. Continued -11- Philip Morris Companies Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (continued) (Unaudited) In March 1994, two cases were filed in the United States District Court for the Southern District of California against the leading United States cigarette manufacturers and others, including the Company, on behalf of a purported class of persons claiming to be addicted to cigarettes and who have been prescribed treatment through the nicotine transdermal system (known as the "nicotine patch"). Plaintiffs asserted violations of the Racketeer Influenced Corrupt Organizations Act ("RICO") and claimed unspecified actual and treble damages. In April 1994, the two cases, which are virtually identical, were combined in a single amended complaint and plaintiffs' counsel agreed to dismiss the separate second-filed case. In July 1994, defendants filed a motion to dismiss the complaint on the grounds that the complaint fails to state a claim. Subsequently, the Company was dismissed from this action by stipulation of the parties; the action continued against the tobacco manufacturers, including PM Inc. In September 1994, the United States District Court granted defendants' motion to dismiss the complaint with prejudice. Plaintiffs have filed a notice of appeal. In June 1994, a case was filed in the United States District Court for the Southern District of California against the leading United States cigarette manufacturers and others, including the Company, on behalf of a purported class of persons claiming to be injured as a result of an alleged addiction to cigarettes or by the alleged exposure to "second-hand" smoke. Plaintiff asserts causes of action for fraud and deceit, negligent misrepresentation, violation of consumer protection statutes, breach of express warranty, breach of implied warranty, intentional infliction of emotional distress, negligence, strict liability, and nuisance, and also seeks injunctive and declaratory relief. In March 1994, an action was filed in an Alabama state court against the three leading United States cigarette manufacturers, including PM Inc. Plaintiff, claiming to represent all smokers who have smoked or are smoking cigarettes manufactured and sold by defendants in the state of Alabama, seeks compensatory and punitive damages not to exceed $48,500 per each class member as well as injunctive relief arising from defendants' alleged failure to disclose additives used in their cigarettes. In April 1994, defendants removed the case to the United States District Court for the Northern District of Alabama. The plaintiff subsequently filed a motion to remand to an Alabama state court. The motion to remand has not been ruled upon. In May 1994, an action was filed in Mississippi state court against the leading United States cigarette manufacturers and others, including the Company, by the Attorney General of Mississippi seeking reimbursement of Medicaid and other expenditures by the State of Mississippi claimed to have been made to treat smoking-related diseases. Plaintiff also seeks an injunction barring defendants from selling or encouraging the sale of cigarettes to minors. In June 1994, defendants removed the case to the United States District Court for the Southern District of Mississippi. In that same month, plaintiff moved to remand the case back to state court. Plaintiff's motion was granted on August 17, 1994 and the case remanded to state Chancery Court. In September 1994, the plaintiff moved to strike defendants' challenges to the sufficiency of the complaint and the subject matter jurisdiction of the Chancery Court. Also in September 1994, defendants moved to transfer the case from the Chancery Court to the Circuit Court. In October 1994, defendants moved for judgment on the pleadings. All three motions are presently pending. Continued -12- Philip Morris Companies Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (continued) (Unaudited) In August 1994, an action was filed in Minnesota state court against the leading United States cigarette manufacturers and others, including the Company, by the Attorney General of Minnesota and Blue Cross and Blue Shield of Minnesota seeking reimbursement of Medicaid and other expenditures by the plaintiffs claimed to have been made to treat smoking-related diseases. Plaintiffs assert causes of action of negligent performance of a voluntary undertaking, violation of Minnesota antitrust laws, violation of consumer protection statutes, restitution, and conspiracy. Various motions are pending. In September 1994, an action was filed in West Virginia state court against the leading United States cigarette manufacturers and others, including the Company, by the Attorney General of West Virginia seeking reimbursement of Medicaid and other expenditures by the State of West Virginia claimed to have been made to treat smoking-related diseases. Plaintiff asserts causes of action for restitution, public nuisance, negligent performance of a voluntary undertaking, fraud, conspiracy and concert of action, aiding and abetting, violation of consumer protection statutes, and violation of the West Virginia Antitrust Act. Plaintiff also seeks an injunction barring defendants from selling or encouraging the sale of cigarettes to minors. The Commonwealth of Massachusetts has enacted legislation specifically authorizing lawsuits similar to that described in the preceding paragraphs. In April 1993, the Company and several of its officers were named as defendants in the first of a number of purported shareholder class actions which have been consolidated in the United States District Court for the Southern District of New York. These lawsuits allege that the Company violated federal securities laws by making false and misleading statements concerning the effects of discount cigarettes on PM Inc.'s premium tobacco business prior to April 2, 1993, the date upon which PM Inc. announced revisions in its marketing and pricing strategies for its premium and discount brands. In April 1994, the Company, PM Inc. and certain officers and directors were named as defendants in complaints filed as purported class actions in the United States District Courts in New York, one in the Eastern District and two in the Southern District. In the Eastern District, plaintiffs allege that defendants violated the federal securities laws by maintaining artificially high levels of profitability through an inventory management practice pursuant to which defendants allegedly shipped more inventory to customers than was necessary to satisfy market demand. In the two cases in the Southern District described above, and in an additional purported class action filed in September in the Southern District against the Company and certain of its directors, plaintiffs assert that defendants violated federal securities laws with statements and omissions regarding the allegedly addictive qualities of cigarettes. In each case, plaintiffs claim to have been misled by defendants' knowing and intentional failure to disclose material information. Continued -13- Philip Morris Companies Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (continued) (Unaudited) The Company and PM Inc. believe, and have been so advised by counsel handling the respective cases, that each has a number of valid defenses to all pending litigation. All cases are, and will continue to be, vigorously defended. Litigation is subject to many uncertainties, and it is possible that some of these actions could be decided unfavorably. An unfavorable outcome of a pending smoking and health case could encourage the commencement of additional similar litigation. Recently, there have been a number of restrictive regulatory, adverse political and other developments concerning cigarette smoking and the tobacco industry, including the commencement of the purported class actions referred to above. These developments generally receive widespread media attention. The Company is not able to evaluate the effect of these developing matters on pending litigation and the possible commencement of additional litigation. Management is unable to make a meaningful estimate of the amount or range of loss that could result from an unfavorable outcome of all pending litigation. It is possible that the Company's results of operations or cash flows in a particular quarterly or annual period or its financial position could be materially affected by an ultimate unfavorable outcome of certain pending litigation. Management believes, however, that the ultimate outcome of all pending litigation should not have a material adverse effect on the Company's financial position. In March 1994, the Company and PM Inc. filed an action against American Broadcasting Companies, Inc. and others alleging injury caused by false and defamatory statements made by defendants on various nationally televised news programs. Among the statements giving rise to the action is defendants' claim that tobacco companies, including PM Inc., artificially "spike" and "fortify" their cigarettes sold in the United States with additional nicotine. The Company and PM Inc. seek compensatory and punitive damages totaling $10 billion. Litigation is subject to many uncertainties and the Company and PM Inc. are unable to predict the outcome of this matter. Pretrial discovery continues. -14- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. ________________________________________________________________________ Operating Results _________________
For the Nine Months Ended September 30, ----------------------------------------- Operating Revenues Operating Income ------------------ ----------------- (in millions) 1994 1993 1994 1993 ------- ------- ------ ------ Tobacco $21,820 $19,965 $4,769 $4,249 Food 23,082 22,712 2,716 2,609 Beer 3,372 3,255 368 326 Financial services and real estate 350 255 160 161 Amortization of goodwill (433) (419) Unallocated corporate expenses (299) (295) ------- ------- ------ ------ Total $48,624 $46,187 $7,281 $6,631 ======= ======= ====== ====== For the Three Months Ended September 30, ----------------------------------------- Operating Revenues Operating Income ------------------ ----------------- (in millions) 1994 1993 1994 1993 ------- ------- ------ ------ Tobacco $ 7,677 $ 6,551 $1,663 $1,294 Food 7,793 7,466 887 821 Beer 1,140 1,111 111 94 Financial services and real estate 100 81 48 68 Amortization of goodwill (147) (138) Unallocated corporate expenses (105) (85) ------- ------- ------ ------ Total $16,710 $15,209 $2,457 $2,054 ======= ======= ====== ======
Operating revenues of $48.6 billion for the first nine months of 1994 increased $2.4 billion (5.3%) and operating income increased $650 million (9.8%) over the comparable 1993 period. Operating revenues of $16.7 billion for the third quarter of 1994 increased $1.5 billion (9.9%) and operating income increased $403 million (19.6%) over the comparable 1993 period. In the third quarter of 1994, operating income in all consumer product business segments increased over the comparable 1993 period. -15- Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 112, "Employers' Accounting for Postemployment Benefits." The cumulative effect at January 1, 1993 of adopting SFAS No. 112 reduced 1993 net earnings by $477 million ($.54 per share), net of $297 million of income tax benefits. Adoption of SFAS No. 112 did not materially reduce the first nine months of 1993 earnings before cumulative effect of accounting change. Operating Results by Business Segment _____________________________________ Tobacco _______
For the Nine Months Ended September 30, ----------------------------------------- Operating Revenues Operating Income ------------------ ----------------- (in millions) 1994 1993 1994 1993 ------- ------- ------ ------ Domestic tobacco $ 8,327 $ 7,755 $2,490 $2,320 International tobacco 13,493 12,210 2,279 1,929 ------- ------- ------ ------ Total $21,820 $19,965 $4,769 $4,249 ======= ======= ====== ======
For several years, the tobacco industry, including PM Inc., has faced a number of issues which have affected volume, operating revenues and operating income. In the first nine months of 1994 and subsequently, these concerns proliferated and new issues emerged. These included proposed federal regulatory controls, actual and proposed excise tax increases, governmental and private restrictions on smoking, new and proposed restrictions on tobacco manufacturing, marketing, advertising and sales, increased assertions of adverse health effects associated with both smoking and exposure to tobacco smoke (and legislation or other governmental action seeking to assess the industry with liability therefor) and the diminishing social acceptance of smoking. See Note 2 to Condensed Consolidated Financial Statements. Currently, the federal excise tax on cigarettes is $12 per thousand ($.24 per pack). In the first nine months of this year, the legislative health care debate produced numerous proposals for increasing the federal excise tax on tobacco, ranging from increases of $1.75 per pack down to $.45 per pack. Legislation in the Senate and in the House of Representatives contained provisions which were identical and which, if enacted, would have resulted in an increase of $.45 per pack, to be phased in over a five year period commencing August 1, 1995. Congress adjourned without taking action on these proposals. It is anticipated that higher excise taxes, if implemented, could result in volume declines for PM Inc. and the cigarette industry and might cause shifts between the premium and discount segments. Legislation or other governmental action is proposed periodically that not only would increase excise taxes but also would curtail further the advertisement and use of tobacco products. During the first nine months of 1994, members of Congress and the Administration proposed measures which, if adopted, would ban or severely restrict smoking in workplaces and in buildings permitting public access, require substantial additional health warning and product content information on cigarette packages and in advertising, eliminate the tax deductibility of a portion of the cost of tobacco advertising and authorize the United States Food and Drug Administration to regulate tobacco as an addictive drug. -16- It is not possible to determine what, if any, governmental legislation or regulations will be adopted relating to cigarettes or to smoking. However, any or all of the foregoing, if implemented, could have an adverse impact on PM Inc.'s volume, operating revenues and operating income, the amounts of which cannot be determined. DOMESTIC TOBACCO. During the first nine months of 1994, domestic cigarette industry volume (based on shipments) shifted from the discount segment to the premium segment. The premium and discount segments accounted for approximately 67% and 33%, respectively, of the domestic cigarette industry in the first nine months of 1994, compared with 62% and 38%, respectively, in the comparable period of 1993. Actions taken by PM Inc. in 1993 in response to the highly price sensitive market environment are discussed below. PM Inc.'s domestic volume (based on shipments) was 164.7 billion units for the first nine months of 1994, an increase of 14.5% over the comparable 1993 period, reflecting the success of PM Inc.'s new pricing strategy and its marketing and promotional programs. This compared with an industry increase of 8.2%. PM Inc.'s market share for the first nine months of 1994 was 44.6%, an increase of 2.5 share points from the comparable 1993 period. In the premium segment, volume in PM Inc.'s brands increased 25.8% in the first nine months of 1994, compared with a 16.9% increase for the industry, resulting in a category share gain of 3.8 share points to 53.3%. The Marlboro family's volume was up 24.2 billion units (30.8%) for a 27.8% share of the total industry, as compared with a 23.0% share in the first nine months of 1993. In the discount segment, PM Inc.'s shipments decreased 16.6% to 31.9 billion units in the first nine months of 1994, compared with an industry decrease of 6.2%, resulting in a decrease of 3.3 share points in this segment to 26.5%. (See below for a discussion of volume changes in the third quarter of 1994.) Since the implementation of the strategy announced on April 2, 1993 and subsequent actions taken by PM Inc. (see below), Nielsen retail sales data indicate share gains for PM Inc. and Marlboro, growing from their low point of 41.6% and 22.0%, respectively, in March 1993 to 46.2% and 29.3%, respectively, in September 1994. Additionally, retail share of PM Inc.'s other premium brands, as a group, climbed to 8.8% in September 1994, up from 8.3% in August 1993, when PM Inc. lowered their wholesale list prices. (March 1993 retail market shares were restated in the first quarter of 1994 to reflect PM Inc.'s change to a more representative Nielsen survey of retail outlets. Previously reported retail market shares for PM Inc. and Marlboro in March 1993 were 41.7% and 22.1%, respectively.) During the first nine months of 1994, the Company's domestic tobacco operating revenues increased 7.4% due primarily to volume increases ($1.1 billion) and favorable product mix ($506 million), partially offset by price decreases ($1.1 billion). Operating income for the first nine months of 1994 increased 7.3% from the comparable 1993 period, due primarily to volume increases ($733 million) and favorable product mix, and lower marketing, administration and research costs ($46 million), partially offset by price decreases ($1.1 billion). -17- During the second quarter of 1993, PM Inc. implemented an extensive promotional program to reduce the average retail price of Marlboro cigarettes. This action, which represented a major shift in its domestic tobacco pricing strategy, was intended to restore lost market share and improve long-term profitability. The market share results of the Marlboro brand price promotion exceeded expectations. Accordingly, during the third quarter of 1993, PM Inc. announced certain actions designed to continue its share recovery strategy. Specifically, PM Inc. created a two category pricing structure for its tobacco brands, premium and discount. In the premium segment, PM Inc. converted its Marlboro retail price promotion into an equivalent wholesale list price reduction that applied to all its other premium brands as well. In the discount segment, PM Inc. raised the net list price of its deep discount products. Its other discount brands are being offered at the same net list price. These strategies effectively narrowed the price gap between PM Inc.'s premium cigarette brands and competitors' discount products. The strategy has thus far proved successful, with PM Inc. recording share and volume gains for Marlboro and its other premium brands since lowering prices. INTERNATIONAL TOBACCO. Operating revenues increased 10.5% due primarily to favorable volume/mix ($588 million), higher foreign excise taxes ($539 million) and price increases ($174 million), partially offset by currency movement ($19 million). Total international unit volume increased 56 billion units (15.8%) to 408 billion units. Volume advanced in most markets, including Germany, Italy, France, Spain, Holland, Belgium, Central and Eastern Europe, the Middle East, Hong Kong, Japan, Korea, Argentina and Brazil. Volume declined in Turkey as poor economic conditions persisted. The Company's market share advanced in most of its major international markets with record shares achieved in Germany, Italy, France, Spain, Holland, Belgium, Switzerland, Finland, Japan, Korea, Hong Kong, Singapore, Argentina and Brazil. International volume continued to grow for Marlboro and the Company's other U.S. heritage brands. Operating income increased 18.1% due primarily to volume/mix increases ($287 million) and price increases and lower costs (aggregating $247 million), partially offset by higher marketing expenses ($122 million) and currency movement ($56 million).
For the Three Months Ended September 30, ----------------------------------------- Operating Revenues Operating Income ------------------ ----------------- (in millions) 1994 1993 1994 1993 ------ ------ ------ ------ Domestic tobacco $2,906 $2,488 $ 863 $ 616 International tobacco 4,771 4,063 800 678 ------ ------ ------ ------ Total $7,677 $6,551 $1,663 $1,294 ====== ====== ====== ======
-18- DOMESTIC TOBACCO. During the third quarter of 1994, domestic cigarette industry volume (based on shipments) shifted from the discount segment to the premium segment. The premium and discount segments accounted for approximately 68% and 32%, respectively, of the domestic cigarette industry in the third quarter of 1994, compared with 66% and 34%, respectively, in the comparable period of 1993. PM Inc.'s domestic volume (based on shipments) was 57.1 billion units for the third quarter of 1994, an increase of 9.6% over the comparable 1993 period, compared with an industry increase of 5.3%. PM Inc.'s volume increase reflects the success of PM Inc.'s new pricing strategy and its marketing and promotional programs. PM Inc.'s market share was 44.9%, up 1.8 share points from the comparable 1993 period. In the premium segment, volume in PM Inc.'s brands increased 13.5% in the quarter, compared with a 7.4% increase for the industry, resulting in a category share gain of 2.9 share points to 53.9%. The Marlboro family's volume was up 5.3 billion units (17.2%) for a 28.6% share of the total industry, as compared with a 25.7% share in the third quarter of 1993. In the discount segment, PM Inc.'s shipments decreased 4.9% to 10.6 billion units, compared with an industry increase of 1.3%, resulting in a loss of 1.6 share points in this segment to 25.8%. PM Inc.'s domestic tobacco operating revenues increased 16.8% due primarily to volume increases ($238 million), price increases ($115 million) and favorable product mix ($54 million). Operating income increased 40.1% from the comparable 1993 period, due primarily to volume increases ($140 million), price increases ($89 million) and favorable product mix, partially offset by higher marketing, administration and research costs ($33 million). INTERNATIONAL TOBACCO. Operating revenues increased 17.4% due primarily to higher foreign excise taxes ($349 million), favorable volume/mix ($227 million), currency movement ($83 million) and price increases ($48 million). Total international unit volume increased 23 billion units (19.0%) to 144 billion units. Volume advanced in most markets, including Germany, Italy, France, Spain, Holland, Belgium, Central and Eastern Europe, the Middle East, Hong Kong, Korea and Argentina. Volume declined in Turkey as poor economic conditions persisted. The Company's market share advanced in most of its major international markets, with record shares achieved in Germany, Italy, France, Spain, Holland, Belgium, Switzerland, Finland, Japan, Korea, Hong Kong, Singapore, Argentina and Brazil. International volume continued to grow for Marlboro and the Company's other U.S. heritage brands. Operating income increased 18.0% due primarily to price increases and lower costs (aggregating $84 million) and volume/mix increases ($78 million), partially offset by higher marketing expenses ($43 million). -19- Food ____
For the Nine Months Ended September 30, ----------------------------------------- Operating Revenues Operating Income ------------------ ----------------- (in millions) 1994 1993 1994 1993 ------- ------- ------ ------ North American food $15,952 $15,887 $1,960 $1,864 International food 7,130 6,825 756 745 ------- ------- ------ ------ Total $23,082 $22,712 $2,716 $2,609 ======= ======= ====== ======
During the first nine months of 1994, NORTH AMERICAN FOOD operating revenues increased 0.4% due to volume increases ($399 million) and price increases, due primarily to rising commodity costs ($303 million), partially offset by the impact of dispositions, net of acquisitions ($562 million) and currency movement ($75 million). Volume rose from increases in cheese; in cereals and processed meats due primarily to new products and line extensions; in frozen pizza due to geographic expansion and category growth; and in foodservice and Canadian operations. Volume declined in commodity oil products, dinners and enhancers (rice products, stuffing mixes and syrups) and coffee (reflecting category contraction from higher pricing due to increased green bean costs). Operating income increased 5.2% over the comparable 1993 period, due primarily to volume increases ($146 million) and price increases, net of cost increases ($100 million), partially offset by higher marketing, administration and research costs ($158 million). In October 1994, the Company announced an agreement to sell The All American Gourmet Company (frozen dinners business) to H. J. Heinz Company. Separately, the Company announced that it is in negotiations which may result in the sale of its Kraft Foodservice distribution business. In May 1994, new labeling requirements for food products, issued by the U.S. Food and Drug Administration, became effective. Compliance with the new requirements has not had, and is not expected to have, a material adverse impact on domestic food results of operations. Operating revenues for INTERNATIONAL FOOD increased 4.5% due primarily to acquisitions ($284 million) and price increases, partially offset by currency movement ($232 million). Volume grew in coffee, due partly to acquisitions, but also because the trade stepped up their purchases in anticipation of price increases due to higher green bean costs. Confectionery volume increased, supported by new product launches. Grocery volume was down in several European markets due to intense price competition, partially offset by increases in the Asia/Pacific region due to improved results from key brands. Operating income increased 1.5% from the 1993 period, due primarily to acquisitions ($30 million) and price increases, partially offset by higher marketing, administration and research costs ($57 million) and currency movement ($49 million). -20-
For the Three Months Ended September 30, ----------------------------------------- Operating Revenues Operating Income ------------------ ----------------- (in millions) 1994 1993 1994 1993 ------ ------ ------ ------ North American food $5,293 $5,261 $ 618 $ 581 International food 2,500 2,205 269 240 ------ ------ ----- ----- Total $7,793 $7,466 $ 887 $ 821 ====== ====== ===== =====
During the third quarter of 1994, NORTH AMERICAN FOOD operating revenues increased 0.6% due to price increases ($117 million, due in part to higher coffee prices reflecting high green bean costs in the third quarter) and volume increases ($87 million), partially offset by the impact of dispositions, net of acquisitions ($149 million) and currency movement ($23 million). Volume increased in cheese; in cereals and processed meats due primarily to new product introductions and line extensions; and in frozen pizza due to geographic expansion and category growth. Volume declined in coffee (reflecting category contraction from higher prices), beverages and commodity oils. Operating income increased 6.4% over the comparable 1993 period, due primarily to price increases, net of cost increases ($88 million) and volume increases ($24 million), partially offset by higher marketing, administration and research costs ($73 million). Operating revenues for INTERNATIONAL FOOD increased 13.4% due primarily to price increases ($175 million), currency movement ($90 million), volume increases ($16 million) and acquisitions ($13 million). Coffee volume rose in Europe, partly due to acquisitions, but also because the trade stepped up their purchases in anticipation of price increases due to higher green bean costs. Confectionery volume was down, due primarily to hotter-than-normal weather in Europe this summer, partially offset by new product launches. Cheese volume in Europe and grocery volume in the Asia/Pacific region advanced due to acquisitions and improved results from key brands. Operating income increased 12.1% from the 1993 period, due primarily to price increases, net of cost increases ($77 million), partially offset by higher marketing expenses ($52 million). Beer ____ NINE MONTHS ENDED SEPTEMBER 30 Operating revenues for the first nine months of 1994 increased $117 million (3.6%) from the comparable 1993 period. This increase was due to the acquisition of Molson Breweries U.S.A. Inc. in the second quarter of 1993 ($71 million), price/mix increases ($61 million) and volume increases ($41 million), partially offset by the disposition of distributorships ($56 million). Unit volume (based on shipments) increased 2.9% in the first nine months of 1994 reflecting strong growth in premium brands (7.8%), partially offset by a decrease in budget brands. Premium brand growth was led by ice-brewed product introductions. Miller Lite volume declined, but volume for the Lite brand family grew due to the introduction of Lite Ice. Operating income increased $42 million (12.9%) over the comparable 1993 period, due primarily to price/mix increases ($33 million) and higher volume ($18 million), partially offset by the disposition of distributorships ($8 million). -21- Periodically, legislation is proposed which would increase excise taxes and curtail the advertisement of beer. If implemented, such legislation could result in volume, operating revenues and operating income declines. QUARTER ENDED SEPTEMBER 30 Operating revenues for the third quarter of 1994 increased $29 million (2.6%) from the comparable 1993 period. This increase was due to volume increases ($30 million) and price/mix increases ($22 million), partially offset by the disposition of distributorships ($23 million). Unit volume (based on shipments) increased 2.8% reflecting the strong performance of the Company's premium brand portfolio, which had volume increases of 7.7% for the quarter. Premium growth was led by sales of Miller's new ice-brewed products and volume increases for brands imported by Molson Breweries U.S.A. Inc. Partially offsetting this increase was a volume decline for the Company's budget brands. Overall volume for the Lite brand family was higher on the success of Lite Ice, partially offset by a modest decline in Miller Lite. Operating income increased $17 million (18.1%) from the comparable 1993 period, due primarily to volume increases ($13 million) and price/mix increases ($12 million), partially offset by the disposition of distributorships ($7 million). Financial Services and Real Estate __________________________________ NINE MONTHS ENDED SEPTEMBER 30 For the first nine months of 1994, operating revenues from financial services and real estate operations increased 37.3% and operating income decreased 0.6% from the first nine months of 1993. Operating revenues from financial services decreased 14.1% from the comparable 1993 period, due primarily to lower finance asset investment levels, reflecting the sale of the Company's stock and bond portfolio in the first quarter. The proceeds from the sales were not reinvested, but used for a $475 million dividend to Philip Morris Companies Inc. Operating income from financial services decreased 18.8% due primarily to high third quarter 1993 income recorded after the Company revalued its leveraged lease portfolio to account for the new federal income tax rate and lower 1994 finance asset investment income. Operating income from real estate operations increased from 1993 levels, due primarily to higher residential land sales in Southern California and Colorado. QUARTER ENDED SEPTEMBER 30 During the third quarter of 1994, operating revenues from financial services and real estate operations increased 23.5% and operating income decreased 29.4% from the third quarter of 1993. Operating revenues from financial services decreased 20.0% due primarily to lower finance asset investment levels versus 1993. Operating income from financial services decreased 48.6% due primarily to high third quarter 1993 income recorded after the Company revalued its leveraged lease portfolio to account for the new federal income tax rate and lower 1994 finance asset investment income. Operating income from real estate operations in 1994 increased from 1993 levels, due primarily to higher residential land sales in Southern California and Colorado. -22- Cash Provided and Used ______________________ Net Cash Provided by Operating Activities _________________________________________ During the first nine months of 1994, cash provided by operating activities was $4.4 billion, compared with $4.6 billion in the first nine months of 1993. The decrease was due primarily to more cash used for working capital items in 1994 and payment of accreted interest on matured zero coupon bonds, partially offset by higher earnings. Free cash flow is a measure of excess cash generated by a company and is available for debt repayment, share repurchase and acquisitions. The Company defines free cash flow as cash provided by operating activities less capital expenditures, dividends paid to stockholders and net investments in finance assets. For the first nine months of 1994, consolidated free cash flow totaled $2.0 billion, as compared to $1.8 billion in the comparable 1993 period. The increase was due primarily to lower net investments in finance assets and higher earnings, partially offset by more cash used for working capital items in 1994 and repayment of accreted interest on matured zero coupon bonds. Net Cash Used in Investing Activities _____________________________________ Cash used in investing activities for the first nine months of 1994 was $668 million, compared with $3.6 billion for the comparable 1993 period. The decrease reflects a $2.5 billion decrease in cash used for acquisitions, net of dispositions, as well as a $327 million increase in net proceeds from finance assets. Capital expenditures were $1.0 billion in the first nine months of 1994, of which 60% related to food operations and 31% related to tobacco operations. During the first nine months of 1993, the Company acquired Freia Marabou a.s, Scandinavia's leading confectionery company, at a cost of approximately $1.3 billion, a North American ready-to-eat cereal business at a cost of $454 million and Terry's Group in the United Kingdom for $295 million. In addition, the Company acquired a 20% equity interest in Molson Breweries in Canada and 100% of Molson Breweries U.S.A. Inc., at a cost of $295 million. The Company also increased its investment in tobacco operations in Central and Eastern Europe. Net Cash Used in Financing Activities _____________________________________ During the first nine months of 1994, the Company's net cash used in financing activities was $3.6 billion, compared with $1.6 billion during the first nine months of 1993. The change reflects a $490 million net issuance of short-term borrowings in 1994 compared with $2.3 billion in the 1993 period, as well as a $1.4 billion net repayment of long-term debt in 1994 compared with $946 million in the 1993 period. Cash used in financing activities for the first nine months of 1994 also reflects dividends paid ($1.8 billion) and the purchase of common stock ($1.0 billion). The Company may continue to refinance long-term and short-term debt from time to time. The nature and amount of the Company's long-term and short-term debt and the proportionate amount of each can be expected to vary as a result of future business requirements, market conditions and other factors. -23- At September 30, 1994, the Company's ratio of consumer products debt to equity ratio was 1.22, down from 1.41 at December 31, 1993. The change reflects an increase in stockholders' equity which was due primarily to net earnings in the first nine months of 1994 and favorable movement in the currency translation adjustment ($640 million), partially offset by dividends declared and purchases of common stock. Dividends paid in the first nine months of 1994 increased 3.0% over the comparable period of 1993, reflecting a 6.2% increase in the annual dividend rate to $2.76 per share from $2.60 per share, partially offset by a lower number of outstanding shares of stock. On August 31, 1994, the Board of Directors increased the Company's quarterly dividend by 19.6% (payable October 11), representing an annualized dividend rate of $3.30 per share. During the first nine months of 1994, the Company repurchased 19.9 million shares of its common stock at an aggregate cost of $1.1 billion; 7.5 million shares were repurchased in the third quarter of 1994. These purchases were made in accordance with the Company's November 1991 announcement of its intention to spend up to $2 billion to repurchase common stock in open market transactions; in May 1992, the Board of Directors authorized an additional $3 billion for such purchases. Through September 30, 1994, cumulative purchases under the program totaled 71.8 million shares at a cost of $4.9 billion. On August 31, 1994, the Board of Directors authorized a new three-year share repurchase program worth $6 billion. The new program took effect on October 27, 1994, after the balance of the previous repurchase program had been used. Contingencies _____________ See Note 2 to the Condensed Consolidated Financial Statements. -24- Item 1. Legal Proceedings. Reference is made to Note 2. Contingencies. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 3.2 By-laws, as amended, of the Company. 12 Statement regarding computation of ratios of earnings to fixed charges. 27 Financial Data Schedule. (b) Reports on Form 8-K. Registrant filed no reports on Form 8-K during the quarter for which this report is filed. ___________ -25- Signature Pursuant to the requirements of the Securities Exchange Act of 1934 the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PHILIP MORRIS COMPANIES INC. BY /s/ HANS G. STORR Hans G. Storr, Executive Vice President and Chief Financial Officer DATE November 14, 1994 -26- EX-3.2 2 AMENDED BY-LAWS Exhibit 3.2 BY-LAWS OF PHILIP MORRIS COMPANIES INC. ARTICLE I MEETINGS OF STOCKHOLDERS SECTION 1. ANNUAL MEETINGS. - The annual meeting of the stockholders for the election of directors and for the transaction of such other business as may properly come before the meeting, and any postponement or adjournment thereof, shall be held on such date and at such time as the Board of Directors may in its discretion determine. SECTION 2. SPECIAL MEETINGS. - Unless otherwise provided by law, special meetings of the stockholders may be called by the chairman of the Board of Directors, the deputy chairman of the Board of Directors (if any) or the president or any vice chairman of the Board of Directors or by order of the Board of Directors whenever deemed necessary. SECTION 3. PLACE OF MEETINGS. - All meetings of the stockholders shall be held at such place in the Commonwealth of Virginia as from time to time may be fixed by the Board of Directors. SECTION 4. NOTICE OF MEETINGS. - Written notice, stating the place, day and hour and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given by mail not less than ten nor more than sixty days before the date of the meeting (except as a different time is specified herein or by law), to each stockholder of record having voting power in respect of the business to be transacted thereat, at his or her address as it appears on the stock transfer books of the Corporation. Notice of a stockholders' meeting to act on an amendment of the Articles of Incorporation, a plan of merger or share exchange, a proposed sale of all, or substantially all of the Corporation's assets, otherwise than in the usual and regular course of business, or the dissolution of the Corporation shall be given, in the manner provided above, not less than twenty-five nor more than sixty days before the date of the meeting and shall be accompanied, as appropriate, by a copy of the proposed amendment, plan of merger or share exchange or sale agreement. August 31, 1994 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 seventeen (17). SECTION 3. TERM OF OFFICE AND QUALIFICATION. - Each director shall serve for the term for which he shall have been elected and until his successor shall have been duly elected. SECTION 4. NOMINATION AND ELECTION OF DIRECTORS. - At each annual meeting of stockholders, the stockholders entitled to vote shall elect the directors. No person shall be eligible for election as a director unless nominated in accordance with the procedures set forth in this Section 4. Nominations of persons for election to the Board of Directors may be made by the Board of Directors or any committee designated by the Board of Directors or by any stockholder entitled to vote for the election of directors at the applicable meeting of stockholders who complies with the notice procedures set forth in this Section 4. Such nominations, other than those made by the Board of Directors or any committee designated by the Board of Directors, may be made only if written notice of a stockholder's intent to nominate one or more persons for election as directors at the applicable meeting of stockholders has been given, -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 STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS EXHIBIT 12 PHILIP MORRIS COMPANIES INC. AND SUBSIDIARIES Computation of Ratios of Earnings to Fixed Charges (dollars in millions) ___________________
Years Ended December 31, ----------------------------------------------- 1993 1992 1991 1990 1989 ------- ------- ------- ------- ------- Earnings before income taxes and cumulative effect of accounting change $ 6,196 $ 8,608 $ 6,971 $ 6,311 $ 5,058 Add (Deduct): Equity in net earnings of less than 50% owned affiliates (164) (107) (95) (90) (62) Dividends from less than 50% owned affiliates 151 125 72 71 34 Fixed charges 1,716 1,736 1,899 1,941 1,971 Interest capitalized, net of amortization (13) (3) (11) - (8) ------- ------- ------- ------- ------- Earnings available for fixed charges $ 7,886 $10,359 $ 8,836 $ 8,233 $ 6,993 ======= ======= ======= ======= ======= Fixed charges: Interest incurred: Consumer products $ 1,502 $ 1,525 $ 1,711 $ 1,754 $ 1,810 Financial services and real estate 87 95 83 93 91 ------- ------- ------- ------- ------- 1,589 1,620 1,794 1,847 1,901 Portion of rent expense deemed to represent interest factor 127 116 105 94 70 ------- ------- ------- ------- ------- Fixed charges $ 1,716 $ 1,736 $ 1,899 $ 1,941 $ 1,971 ======= ======= ======= ======= ======= Ratio of earnings to fixed charges 4.6 6.0 4.7 4.2 3.5 ======= ======= ======= ======= =======
EXHIBIT 12 PHILIP MORRIS COMPANIES INC. AND SUBSIDIARIES Computation of Ratios of Earnings to Fixed Charges (Continued) (dollars in millions) ___________________
Nine Months Ended Three Months Ended September 30, 1994 September 30, 1994 ------------------ ------------------- Earnings before income taxes $6,340 $2,147 Add (Deduct): Equity in net earnings of less than 50% owned affiliates (148) (26) Dividends from less than 50% owned affiliates 153 18 Fixed charges 1,143 378 Interest amortization, net of capitalization 6 - ------ ------ Earnings available for fixed charges $7,494 $2,517 ====== ====== Fixed charges: Interest incurred: Consumer products $ 989 $ 328 Financial services and real estate 59 19 ------ ------ 1,048 347 Portion of rent expense deemed to represent interest factor 95 31 ------ ------ Fixed charges $1,143 $ 378 ====== ====== Ratio of earnings to fixed charges 6.6 6.7 ====== ======
EX-27 4 ARTICLE 5 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from Pages 3-5 of the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1994 and is qualified in its entirety by reference to such financial statements. 1,000,000 9-MOS DEC-31-1994 SEP-30-1994 354 0 5,025 173 7,708 14,240 18,017 7,152 52,882 13,024 15,557 935 0 0 12,004 52,882 48,624 48,624 29,636 29,636 11,707 0 941 6,340 2,707 3,633 0 0 0 3,633 4.17 4.17
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