sample="quota" bates="500325578" isource="atc" decade="1960" class="ue" date="19610214" ATC 1960 Annual Report Ray Blevins Mkg Res. The American Tobacco Company ANNUAL REPORT 1960 ANNUAL REPORT For the year ended December 31, 1960 The American Tobacco Company Executive Office, 150 East 42nd Street, New York 17 CONTENTS 2 HIGHLIGHTS 3 PRESIDENTS LETTER 14 OPERATIONS AT A GLANCE 15 CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS 16 CONSOLIDATED BALANCE SHEETS 18 NOTES TO STATEMENTS 19 SUPPLEMENTARY FINANCIAL INFORMATION 20 AUDITORS' CERTIFICATE 21 DIRECTORS AND OFFICERS 22 TEN-YEAR FINANCIAL REVIEW 24 YOUR COMPANY'S PRINCIPAL PRODUCTS HIGHLIGHTS The American Tobacco Company and WHOLLY-OWNED SUBSIDIARIES THE PRESIDENT'S LETTER To Our Stockholders... FEBRUARY 14, 1961 This report covers operations of The American Tobacco Company, including wholly-owned subsidiaries, for 1960. Dollar sales in 1960 reached an all-time high at $1,215,342,819 compared with $1,161,376,858 in 1959, an increase of $53,956,951. This was the second successive year in which dollar sales showed a gain of more than $50 million. The Company's unit cigarette sales in 1960 were higher than in 1959, both in this country and abroad. Net income in 1960, before deducting nonoperating charge of $797,292 to provide against possible loss of leaf inventory in Cuba, was $63,319,605, slightly higher than the record $63,248,270 for 1959. The 1960 fourth quarter was the fifth successive quarter to show a record high in dollar sales. Despite the provision against possible Cuban leaf loss (charged to fourth-quarter earnings), net income during that period also set a new record for a fourth quarter. Sales Again in 1960 the Company's cigarette volume increased in both the filter and non-filter fields. PALL MALL, the largest selling brand made by the Company, recorded substantial and consistent increases throughout 1960. It has been estimated that PALL MALL Cigarettes account for about one-seventh of all cigarettes consumed in the United States. The outstanding success of PALL MALL is attributed to the outstanding quality of its tobacco blend, reflecting the Company's high standards of leaf purchase and precision manufacture. DUAL FILTER TAREYTON Cigarette sales continued to increase in 1960. Since its introduction in July 1958, DUAL FILTER TAREYTON has shown a steady upward sales curve. In addition to the traditional TAREYTON tobacco blend, this brand offers the exclusive dual filter with an inner component of activated charcoal, definitely proved to make the taste of a cigarette mild. Increasing acceptance of both king-size and filter-tip cigarettes again resulted in a contraction of the market for standard-size cigarettes. Unit sales of LUCKY STRIKE Cigarettes, however, showed a lesser rate of decline in 1960 than in 1959. Export unit sales of your Company's cigarette manufactured in this country, as well as unit sales of cigarettes manu- factured and sold abroad by the Company's English subsidiary, J. Wix & Sons Limited, were higher in 1960 than in 1959. Estimated industry cigar sales in the 10¢ price class and ROI-TAN sales in this class were lower in 1960 than in 1959; however, ROI-TAN continues to be America's largest-selling 10¢ cigar. The brand's new Sta-Firm head, advertised beginning at mid-year was reflected in improved sales performance during second half. ROI-TAN also offers Golvers at 4¢ and Cigarillos and Trumps at 5¢. Combined sales of the two 5¢ shapes ere higher in 1960 than in 1959. The Company's higher-priced cigars- including LA CORONA, ANTONIO y CLEOPATRA and BOCK y CA-again showed an increase in combined unit sales. These brands comprise the largest-selling cigar line in their field. Sales of smoking tobaccos were lower in 1960 than in 1959. Improvements in packaging continued in 1960. A new package design for HERBERT TAREYTON Nonfilter King-Size Cigarettes was introduced early in the year. A new carton was designed for LUCKY STRIKE Cigarettes and introduced in January 1961 The Company's principal products are listed on page 24 of this report. Stockholders are urged to use these quality products themselves, to use them as gifts, and to promote them among their friends and acquaintances who smoke. By promoting the Company's brands, stockholders can materially contribute to sales and to the value of their own investment. Earnings Net income in 1960, before deducting nonoperating charge of $797,292 to provide against possible loss of leaf inventory in Cuba, was $63,319,605, slightly higher than the record $63,248,270 for 1959. After this deduction, 1960 net income was $62,522,313. Based on 13,025,044 shares of the Company's Common stock now outstanding, per share earnings in 1960, before providing against possible loss of leaf inventory in Cuba, were $4.62 against $4.61 in 1959. After this provision, per share earnings in 1960 were $4.56. Per share figures are in terms of the present Common stock, after the 2-for-1 split effective April 7, 1960. The American Tobacco Company's investment in and advances to Cuban Tobacco Company Inc. are carried on the balance sheet at $5,555,069, representing less than 1% of the Company's total assets. The Company's 1960 income included $207,270 representing interest on Cuban Tobacco Company Inc. loan and notes; this was less than 1/4 of 1% of The American Tobacco Company's operating income before taxes. Cuban Tobacco Company Inc. has paid no dividends on its Common stock for many years. Through its investment in Cuban Tobacco Company Inc. the Company had an equity in two small subsidiaries which operated in Cuba. One was intervened and the other nationalized. Information regarding the financial aspects of these expropriations are set forth in the notes on page 18. Provision was made against possible loss of leaf tobacco inventories in Cuba owned by The American Tobacco Company which we were unable to have shipped to the United States. This amount was $797,292 after deducting applicable Federal income tax. Cuban Tobacco Company Inc. continues to manufacture cigars in the United States at is Trenton, N.J., factory. Sales of these cigars amounted to $8,716,501 in 1960. Dollar sales of cigars and ciga- rettes manufactured in Cuba are not available for 1960. However, in the past they have represented less than one-half of Cuban Tobacco Company's consolidated sales of manufactured products. Advertising and Sales Promotion Your Company is one of the nation's largest advertisers. Virtually all major media, including newspapers, magazines, television, radio and billboards, are used to sustain and widen the demand for our tobacco products by the smoking public. As is the case with most manufac- turers of branded consumer products, considerable time, effort and expense are devoted to this aspect of operations. National advertising to sustain increase and increase the large sales volume of our brands makes it possible for the Company to maintain and improve their high quality standards and still produce a profit. Beginning about one hundred years ago, national advertising made possible the emergence of national tobacco brands and the volume production, high quality standards and relatively low prices on which the Company's business is based. Our Sales Organization, which is also nationwide, reinforces the work of our brand advertising and services the distribution of our products. Its members strive to maximize distribution, extend merchandising and display aid to retailers, insure that our products are properly cared for at both wholesale and retail levels, and also sample consumers directly. The work of the Advertising and Sales Departments is constantly reviewed so as to get full value for each dollar spent on promotion and so as to strengthen our important lines of communication with the trade and the consuming public. Tobacco Institute The Tobacco Institute, Inc. represents your Company and other tobacco manufacturers in creating better knowledge and understanding of tobacco among the general public. On December 1, 1960, Mr. George V. Allen assumed the Presidency of The Tobacco Institute. Mr. Allen resigned last year from government service after a distinguished thirty-year career as Ambassador to various countries, as Assistant Secretary of State for Public Affairs, and as Director of the United States Information Agency. A native of Durham, North Carolina, Mr. Allen was reared in the tobacco country and has had first-hand experience in our industry. Representative Advertisements Smoking and Health As was true in previous years, 1960 produced no laboratory or pathological evidence to support the highly propagandized anti-cigarette theory. The lack of substantiation for this theory has been the subject of comment by a number of outstanding scientists. Your Company continues to support the scientific program of the Tobacco Industry Research Committee, now in its eighth year. Since its inception, the T.I.R.C. has appropriated about $4 million for objective research in the area of smoking and health, this research being performed by independent scientists with no obligation to the industry other than to pursue the facts and publish them. The research program is administered by a Scientific Advisory Board whose members are not connected with the tobacco industry. Last year in a joint report to the T.I.R.C., the Scientific Advisory Board stated in part: "...perhaps the most significant development has been the general recognition that we don not yet have the an- swers: that an association between the extent of tobacco use and the incidence of lung cancer does not prove a causal relationship..." Supplementary Financial Information Inventories used in the computation of cost of sales are priced at costs which result from the averaging monthly of transactions reflected in the inventory accounts except that excise taxes in manufactured stock inventories were priced at actual cost. Report of Independent Certified Public Accountants The Board of Directors and Stockholders of THE AMERICAN TOBACCO COMPANY: We have examined the consolidated balance sheets of THE AMERICAN TOBACCO COMPANY as of December 31, 1960 and 1959 and the related consolidated statements of income and retained earnings for the years then ended. Our examinations were made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the accompanying balance sheets are related statements of income and retained earnings present fairly the consolidated financial position of The American Tobacco Company and its wholly-owned subsidiaries as of December 31, 1960 and 1959, and the consolidated results of their operations for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis. LYBRAND, ROSS BROS. & MONTGOMERY New York, February 2, 1961. The American Tobacco Company DIRECTORS ORPHEUS D. BAXALYS ALFRED F. BOWDEN THOMAS P. CONNORS A. GORDON FINDLAY JOHN G. HAGER, JR. VIRGIL D. HAGER PAUL M. HAHN HIRAM R. HANMER HARRY L. HILYARD A. LEROY JANSON FERDINAND MALLGRAF JOHN B. SPARROW SILAS E STRICLAND GEORGE L. TURNER ROBERT B. WALKER GEORGE A. WILKINSON WILLIAM B. YOUNG OFFICERS PAUL M. HAHN, President ALFRED F. BOWDEN, Vice President VIRGIL D. HAGER, Vice President HARRY L. HILYARD, Vice President and Treasurer A. LEROY JANSON, Vice President and Comptroller ROBERT B. WALKER, Vice President WILLIAM B. YOUNG, Vice President J. WESLEY DALE, Auditor ROBERT K. HEIMANN, Assistant to the President JOHN W. HANLON, Secretary WALTER A. KENNEDY, Assistant Auditor FREDERICK W. KENNY, Assistant Secretary JOSEPH R. WATERHOUSE, Assistant Treasurer FRANCIS X. WHELAN, Assistant Treasurer Executive Office 150 East 42nd Street, New York 17, N.Y. Corporate Office 117 Main Street, Flemington, N.J. Transfer Agent Morgan Guaranty Trust Company of New York, New York 15, N.Y. Registrar First National City Trust Company, New York 15, N.Y. YOUR COMPANY'S PRINCIPAL PRODUCTS which make your dividends possible.... CIGARETTES Pall Mall - "Outstanding...and they are mild!" - the nation's King. PALL MALL's famous length of fine tobacco travels and gentles the smoke - makes it mild. Never too strong. Never too weak. Always just right! And you can light either end! Lucky Strike - A blend of the finest Turkish and domestic tobaccos. The LUCKY STRIKE process "It's Toasted" enhances the taste of these fine tobaccos. A leader among standard size brands Dual Filter Tareyton - "Delivers the flavor - Dual Filter does it." Combines a unique inner filter of Activated Charcoal with a pure white outer filter. It has been definitely proved that Activated Charcoal makes a taste of a cigarette mild and smooth. Herbert Tareyton - Full king size...the nonfilter cigarette with the tailored tip. A favorite for 45 years because of its distinctive, mild taste. CIGARS Roi-Ten - America's largest selling cigar 23.4 mil. at 10¢. Also ROI-TAN Cigarillos and 8.9 Trumps at 5¢ and Golfers at 4¢. "ROI-TAN has more of everything" than any cigar at its price .6 Antonio y Cleopatra - the mildest of the fine cigars 2.2 La Corona - "Supreme the World Over" Bock y Ca - the original panetela, created in 1888 "International Brands," among which are LA CORONA, BOCK y CA and HENRY CLAY, are manufactured by a subsidiary of the Company. SMOKING TOBACCOS Half and Half - the Company's leading granulated plug cut, Burley and Bright. Being made available in pouch-in-box packing for double protection, longer-lasting freshness Blue Boar - American Tobacco's leader among high grade pine tobacco blends Genuine "Bull" Durham - still far and away the No. 1 "roll-your-own" tobacco The American Tobacco Company "Tobacco IS OUR MIDDLE NAME"