sample="quota" bates="ATX040310704" isource="atc" decade="1960" class="ue" date="19660406" The American Tobacco Company SUMMARY OF ANNUAL MEETING OF STOCKHOLDERS HELD AT FLEMINGTON, NEW JERSEY ON WEDNESDAY, APRIL 6, 1966 Stockholders arriving at the Hunterdon Central High School near Flemington, New Jersey. Many from New York City were brought to the meeting by us. Directors assembled in the lobby of the Company's New York headquarters prior to departing for the Annual Meeting. Mr. Robert B. Walker, President and Chairman of the Board, acted as Chairman of the Meeting and Mr. John W. Hanlon, Secretary, acted as Secretary of the meeting. The following directors were introduced by the Chairman: Virgil D. Hager, Executive Vice President; A. Leroy Janson, Executive Vice President; Alfred F. Bowden, Vice President and President, Cigar Division; Robert K. Heimann, Vice President Marketing and Public Relations; Cyril F. Hetkso, Vice President and General Counsel; Joseph R. Waterhouse, Vice President and Treasurer; James J. Cunningham, Director of Corporate Procurement; John G. Hager, Jr., Vice President Cigarette and Tobacco Manufacture; Eugene F. Mooney, Director of Sales; John B. Sparrow, Director of Leaf Purchases; Silas E. Strickland, Director of Leaf Processing and Storage, and two of our outside directors: Alvin R. Jennings and George H. Woodard. The Chairman also introduced two new directors: Boone Gross, the Company's third outside director, and Julien B. McCarthy, Director of Manufacturing and Leaf. Messrs. R. Kirk Batzer and Reed L. Colegrove of Lybrand, Ross Bros. & Montgomery, the Company's independent public auditors, were presented by Chairman Walker. More than 83% of the total eligible votes were represented at the meeting. The Chairman reported to the meeting on the Company's progress and plans for the future. PRESIDENT'S REPORT Fellow Stockholders, Ladies and Gentlemen: In 1965, dollar sales and dollar earnings attained a new high and unit cigarette sales were the highest in the history of The American Tobacco Company. Let me assure you, however, we do not feel we have reached a comfortable plateau-nor would your Management be content to stay on one. We have never made specific predictions of earnings, nor will I today, but you can be certain we will work hard to make each year's results better than the year before. We are confident that our growth will continue, but rather than paint an overly optimistic picture I choose to say that we are realistically facing the obstacles that have been cast in our path. One such obstacle is the caution notice now required on all cigarette packages. Other obstacles are increased taxes, increased operating costs and continuing harassment from anti-tobacco groups. I know of no panacea for these problems; however, as we have in the past, we shall meet them squarely and with courage and we will devote every waking hour to planning and working to assure the continued profitable growth of The American Tobacco Company. In the three years that present Management has been in office we have concentrated on increasing our share of the filter tipped cigarette market. This, I believe, was clearly stated in our Annual Report for 1965. Many new products have been developed to enable the Company to meet and satisfy consumer tastes in today's ever-changing market. Progress through innovation These new products are helping us to increase our share of the cigarette market. Four of these new products we introduced in 1964 - CARLTON, HALF AND HALF, LUCKY STRIKE Filter and PALL MALL Filter Tipped. All are now in national distribution. In 1965 these four brands yielded almost 90 million dollars in sales. I think you will agree that this is a pretty good payoff from our first year of new product development, and I think it fair to say that it may be considered as 90 million dollars in cigarettes sales that we would not otherwise have had last year. Last year we developed eight new cigarette brands. In the process of doing this, the Manufacturing Department gave me a new name. Down South and especially in the Richmond Research and manufacturing plant they call me "Brand-a-month Walker." Nothing would please me more than to continue to justify this name. Competition is intense and the stakes are enormous, but with many of our new brands we have managed to leapfrog competition and beat them to the marketplace. Our strategy has been carefully Mr. Walker called the meeting to order at 1:30 p.m. planned and carefully executed-and the results are gratify. We intend to continue to do everything we can to add to our list of "firsts." In our diversification plans we strive to meet two requirements: first, that our diversification will not distract the attention of your Management from its basic responsibility, which is the care and growth of our successful tobacco business; second, that our diversification activity carries with it the potential of tangible benefits to your stockholders in future years. We are proceeding with the details of the Sunshine transaction and we will keep you advised of further developments regarding this fine acquisition. In December we added another outside Director bringing our total representation of outside directors up to three. Mr. Boone Gross, retired President of the Gilette Company, brings to American Tobacco's Board more than 35 years of sales and marketing experience. At this point I would like to take a moment to honor a fellow Director--a close friend and valued associate of many years--Mr. A. LeRoy Janson, Executive Vice President and chief financial officer, who retires at the end of this month. Mr. Janson has been with American Tobacco since 1936; his great devotion and loyalty to the Company will long be remembered by those who have been privileged to work with him and we will miss his wise counsel and dedicated service. Increased Dividends In July we announced a dividend increase which raised the annual dividend rate from $1.60 to $1.70. In January of this year your Board of Directors voted another dividend increase from 42½ cents to 45 cents bringing the annual rate up to $1.80. This is the sixth year since 1960 in which dividends have increased. The rise from $1.25 in 1959 to the present annual rate represents a gain of 44%. On June 30 at a special meeting the stockholders voted to retire the Company's Preferred stock and to permit future stockholder meetings to be held in New York City as well as in New Jersey. At that time I stated that the retirement of the Preferred would strengthen and increase the flexibility of the Company's financial position and put us in a better position for financing an acquisition. Regarding the vote to permit future stockholder meetings to be held in New York City as well as in New Jersey, I reported that the Company had made no decision to hold such meetings in New York. Attendance at our meetings has increased in recent years to an extent where available space in Flemington may John Henry Campbell urged the Company to buy its own Common stock. not be sufficient in the future to accommodate those who wish to attend. The cost reduction program instigated in 1963 continues to yield decisive savings. Despite the trend to higher prices, our purchasing department reduced cost of supplies by more than $400,000 in 1963; by $430,000 in 1964; and reductions in 1965 mounted to $1,055,484.10. Though this program is constantly being intensified we shall never compromise on quality of product. R. Kork Batzer, representing the Company's independent auditing firm, reported to the stockholders. The Labeling Law This year Federal Law requires a notice on all packages of cigarettes manufactured after January 1, 1966, reading: "Caution: Cigarette Smoking May Be Hazardous To Your Health." Our packaging has been redesigned to comply with this new law. Though it is too early for us to give any report indicating how the labeling law has influenced sales, we believe it will have some impact, just as the Surgeon General's Report did in 1964. From day to day I receive many letters from people throughout the country and there is one that I would like to quote form that requested a favor- "Will you do me a favor? It is very kind of my government to be so concerned about my health but I have the doctors' bills to prove that it would have done more good if that same government had made automobile manufacturers print that warning on all cars. Would you make that suggestion to them, please. In fact, the man who hit me was drunk before noon and it might have helped if the warning was on liquor bottles, too." Recognition of Problems As I mentioned at the beginning of my address anti-tobacco groups continue their campaign against cigarettes at every level, and are quick to grasp any opportunity that gives them a platform to be heard. Responding to a question about the Company's price increase instituted in March, Mr. Walker pointed out that costs have risen beyond our power to compensate for them by operating economics. The major manufacturing cost is leaf tobacco and under the government's price support program leaf prices on the Burley and Bright markets in 1965 and 1966 rose more than 10%. Other factors which have increased costs and which promise to increase costs still more in the near future are: one, higher interest rates on borrowed money; two, higher labor costs; three, increased cost for scientific and new product research; four, continuing increases in media rates; five, increased Federal taxes for Social Security and Medicare. In the year ended March 18, twenty-three states increased their cigarettes taxes. The average increase in these states was more than two cents per pack. No one denounced these increases as inflationary, yet on the average they are considerably greater than the 4/5 of a cent per pack announced on March 11 and which later halved to 2/5 of a cent per pack. Thomas V. Brosnahan asked about the Company's new product development program. Since the price increase in 1957, the price of our major brands, PALL MALL and LUCKY STRIKE have increased by 1% and 4%, respectively. During the same period of time, the consumer price index increased by 10%. In this context it is clearly fallacious to label a modest cost recovery such as our recent price increase as "inflationary." In the fourth quarter of 1965, before higher leaf prices had a chance to show their effects on our reported costs, our net earnings showed a decline being $739,000 under the net income reported in the fourth quarter of 1964. A Wall Street Journal summary of 604 large companies showed an average gain of 16.4% in the net income for the fourth quarter of 1965. However, the six large tobacco companies included in this survey showed a combined loss for the fourth quarter of 1965 of 1/10 of 1% compared with the year earlier period. These results clearly indicate the beginning effects of the higher costs referred to above. Despite the pressure of these increased costs, we believe we responded fairly to the Administration's request to restrain price increases on consumer goods when on March 21 we halved our 40¢ per thousand price increase. We find it difficult to understand how the government, with one hand, can escalate leaf prices by 10%, yet on the other hand object to a price increase which would add only 2% to the average price at retail. Nevertheless, as a contribution to the fight against inflation, we took action on March 21, reducing our price increase by 50%. Discussion also came up about recent newspaper articles reporting the ban- Stella Phillips commenting that the acquisition of Sunshine Biscuits, Inc., expressed implicit confidence in the Company's Chairman and the Board of Directors. ning of cigarettes being given to servicemen in military hospitals, in the United States and overseas. Mr. Walker responded that this was true and that Government hospitals prohibit the free distribution of cigarettes to hospitalized servicemen and veterans. A question was asked about the Company's purchase of its Commonstock and the price of this stock at the time of purchase. The Chairman stated the Company bought through the stock exchange 179,300 shares of its Common stock between July 1965 and January 1966 at an average price of $36.96 per share. During this period, the price of Common stock on the market ranged from a high of $41.78 to a low of $32.25. Other discussion topics included advertising, new cigarette brands, the Company's announced move to a new headquarters building in New York City, the sale of property overseas and marketing. During the course of the meeting, and at its close several stockholders complimented the Company on its plan to acquire Sunshine Biscuits and on its general progress, and commended the Chairman for an informative and pleasant meeting. Mr. Walker and other directors after the meeting. During the meeting, Mr. Walker paid tribute to A. LeRoy Janson, Executive Vice President, at right, who retired at the end of April. Many stockholders found a moment to congratulate Mr. Walker following the meeting. YOUR COMPANY'S PRINCIPAL PRODUCTS which make your dividends possible... Nonfilter Cigarettes PALL MALL LUCKY STRIKE HERBERT TAREYTON Filter Cigarettes TAREYTON LUCKY STRIKE Filters PALL MALL Filter Tipped PALL MALL Menthol WATERFORD HALF AND HALF Filter Cigarettes MONTCLAIR CARLTON Cigars ROI-TAN ANTONIO y CLEOPATRA LA CORONA BOCK y CA TIPTON Smoking Tobaccos HALF AND HALF BLUE BOAR GENUINE "BULL" DURHAM Printed in U.S.A. The American Tobacco Company 150 E. 42nd Street, New York, N.Y. 10017