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S Yeara 1972 1967
Compounded Average
Annual Growth
Rate
: Operatin g
Revenues 52,131,224 $904,841 18 .746
Pre-Tax
Income 229,634 81,317 23 .19
s
6 Earning
pershare
Primary 4.67 1.9718 :9% .
Fully
Dt7uted 4.37 1 .94 17 .6 %
10 Years 1972196
2Compounded Average
Annual Growt h
Rate
Operaling
Revenues S2,131y24 $550,624 14 .5 %
Pre-Tax
Income 229,634 47,464 1115.
Earnings
per Share
Primary 4.67 0.98 16 .9%
Full y
DilJtted 4.37 0.9816 :1°0
15 Years
Operating
Revenues
fre-Tax
Income
Earnings
per 3hare
Primary
Fully
Diluted
1972 1957
Compounded Average
Annual Growth
Rate
$2,131,734 $439,920 : 11 .11.
229,634 35,740 132 %
4.67 0,76 12.996
437, 0.76 12:4 %
The year 1972 was one of significant
achievement for Philip Morris
Incorporated in terms of unit sales ,
revenues, profits and continue d
strengthening of its financial position .
The above table highlights the recor d
of our growth during the last 5-, 10- ,
and 15-year periods . This
performance establishes Phili p
Morris as one of the leading growth
companies in U.S. industry .
The improving trend lnpre-tax profi t
margin which commenced in 1965
continued during 1972, as may be
noted in Chart 1 . This improvement
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was particularly gratifying in view
of the increased cost of tobacco leaf .
labor, and other raw materials, and
the absence of any opportunity to
increase prices due to government
controls . This improvement was
primarily the result of the significantly
greater unit volume and a n
effective cost control program
throughout the company .
Record levels of capital expenditures
were recordedduring 1972 in
the amount of S 120 million,
However, our expanding funds from
operations provided the majority-
97 percentin 1972-of our capital
expenditure requirements, as
illustrated in Chart 2 and further
amplified in the Financial Statements .
We anticipate thatthis high leveliof,
capital spending will continue for at
least the next five years and that
during that time these requirements
will be exceeded by internally
generated funds from operations.
For the fifth consecutive year, the
company increased the dividend on
its common stock . As a result of the
Phase Ii restrictions, this increase
was limited to 4% for1972 : As
illustrated in Chart3 ; our dividend
payoutcontinues to be conservative
and we believe represents sound
financial policy in view of the high
level of capital expenditures
anticipated for the nextseveral years.
This conservative dividendpoliey,
plus conversion ofdebentures, has
resulted in a rather rapid expansion
of stockholders' equity (Chart 7)j
Nonetheless, our pre-tax return on
stockholders' equity continues to
exceed'30%, which is well ahead of
the return on equity of the 30 Dow
Iones industrial companies (Chart 4)j
The reeentaapid growth in our pe r
share earnings extended into 1972.
CharrS illustrates thisgtowth an d
compares Philip Morris performance
with that ofrthe 425 stocks used i n
the Standard and Poor's industria l
average .
Our overall financial condition
strengthened further in 1972 with a
substantial increase in workin g
capital as well as stockholders' equity
(Chart7) . Long term debt increased
from the prior year primarily as a
result of converting $150 million of
our short'term borrowingS to long
term, However, the ratio of long term
debt to equity (Chart 6) has been
reduced from a peak in 1969 and is
presently, in our opinion, at a
conservative leveli There are no
significant near term maturities of
funded debt, and with our strong
financial condition we anticipate no
need for any domestic long term debt
or equity financing.
The continuation of the government's
balance of payments program
requires us to raise certain funds
overseas . During the year, Philip
Morris sold $31 million of 15-year
Deutsche Mark debentures . We
would expect that other offshore
term financing will'be required from
time to time for as long as the balance
of payments program remains in
effect .
Following the Smithsonian Accord
iaDecember, 1971, there were no
major currency realignments that
affected earnings in a material
manner . The net result of such
realignments that did occur in 1972
was reflected by an increase in the
reserve applicable to international
operations of$3 :8 million.
During the year, the company was
advised by the New York Stock
Exchange that as a result of changes
in its listing requirements our
3 .90% Series Preferred was to be
delisted. This would have resulted in
further reducing its already limited
marketability, Consequently, in
December, 1972, the company
offered to purchase all shares of the
3490% Series Preferred for $70 per
share and simultaneously offered to
purchase all shares of the 4% Series
Preferred at $75 per share . Upon the
expiration of the offer, January 12,
1973 ; 141,565 shares representing
80.5% of the combined'outstandin g
shares had been purchased and wil l
be canceled . Subsequent to the offer,
the 4% Series was also delisted .
4 1
..it'.'