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ATLANTA SPEECH Those of you who were with me in Phoenix in November may remember that I made two predictions. First that we would be meeting again in January, which we are, second that we would be in San Diego, which we very obviously are not. Still, if I can bat 500 with Don Johnston pitching, I know you all will do a hell of a lot better when you get all those seemingly impossible ACV targets thrown at you later in the week. Something l've learned a little about in these last five months during which we've taken BARCLAY through an incredibly successful test market to national introduction is the enormous complexity of getting all those cigarettes, over 1 billion of them, into over 250,000 outlets at the right time. And its not Just the cigarettes but the thousands of pieces of point of purchase and display material. It's mind boggling. Yet until recently, I took it for granted that it just happened. So, as I begin to understand what you all have to do, and the hours you all have to work, and the weather many of you will have to fight, I'm grateful for this opportunity to let you know some of the things we in R&D and Manufacturing have done to bring BARCLAY to you. What l'm going to do in the next 15 minutes, is tell you about the prod- uct, and the people who brought it to you. And Just as there are unsung heroes and heroines among all of you who fight and win daily battles among difficult circumstances, so there are in the laboratories and factory floors at Hill Street, several hundred people, most of whom you will never know, who have made all this possible. Q0

Just over two years ago Bob Sanford, our Vice-President of R&D whom you met last night, told me he didn't think Brown & Williamson could crack the ultra low tar market with just another Carlton. I guess Cambridge proved him right. What we need, he said, is a filter that gives low tar and low gas but is easy to draw. What's more, he said, the cigarette should have as much taste as Merit. Well, I smiled politely, it was close to perfor- mance evaluation time, and said I'd see what we could do. Frankly, I felt out of my depth and when I told Bonnie McCafferty about it, as you can see, she was, for once, speechless. Well, after taking careful aim at the situation, I decided a blunt instrument would not work and called instead on Dr. Bob Johnson, Research Scientist. Bob Johnson, the man who eventually invented the BARCLAY filter, a man who is with us here today, and a man whom I would like you to Join with me in honoring now, Bob Johnson. So let's take an inside view of Bob Johnson's invention. It's really a very simple invention...like all good inventions are. The key is that the diluting air which comes in through the tipping paper does not mix with the smoke until it gets into your mouth. By making all the smoke go through all the filter slowly, the filter has time to do its job. We still don't totally understand why it works so well, but we do have independent verification that its physics provide O 00

more taste/unit of tar than from any normal filter. When Bob first invented it, he had it in the cigarettes the wrong way around. He thought it would give the effect he wanted, but it didn't. Fortunately, he followed an old scientific principle...let's kick it and see what happens. What happened was a smoke taste that made him check his tar analyses. What happened later was a consumer reaction that we at first didn't believe...and then management didn't believe...until $200,000 worth of consumer testing made us all believers. But that's another story which I will come back to later. Let me return to the people and tell you how we took the basic techno- logy from lab scale full production. A product development team was established. We had two problems to solve--what ingredients to use in the cigarette to provide the best possible smoking quality, and how to make the products on a commercial scale. Let's talk about the commercial scale first. Here's where we started. The filters were made by hand, one at a time. Jack Sexston, Manager of Machinery Development built a prototype machine which grooved 200 filters a minute. While this served to satisfy consumer testing, a faster rate was needed for commercial production. He and his staff designed the current grooving machines which provide over 2000 filters a minute. A tremendous amount of fine tuning was needed to make the filters for grooving, and my people worked with Jack's for months to get the materials and machinery right. At the same time, the Product Development staff and leaf-blenders were working to find the right recipes to optimize smoke taste. We looked at over 200

combinations. Some of the blends with the magical-grooved filter were too strong, even at 1 mg tar. We evaluated the cigarettes ourselves (PAUSE) with small consumer panels, and in large scale tests by our Marketing Research Department. Let's look first at some consumer panel results. Results which compare BARCLAY's ease of draw with some competitive products. First the KS product. There are two scales here. The column headed LAB is a machine measurement. The bigger the number the more the machine has to work to take a standard draw through the cigarette. Just think of those numbers as soda straws of different lengths -- in inches. The machine has to do as much work when it draws on Merit as you would have to do sipping a drink through a 5.1 inch long soda straw. BARCLAY, on the other hand, is like sipping through a 1.5 inch soda straw -- one third of the effort. The column headed consumer shows consumer ratings on a nine point scale. Nine is very hard, one is very easy. As you can see, both machines and people find BARCLAY KS a very easy drawing cigarette. We have the same story for BARCLAY 100s. It's a longer cigarette so there's a little more soda straw for the machine to suck through than on the KS but once again machines and people overwhelmingly agree that BARCLAY is twice as easy on the draw. 0o

Why is this? Well, it's very simple. All low tar and ultra-low tar cigarettes have little holes in the tipping to by- pass air away from the burning end of the cigarette when people or machines puff on them. They also have fairly dense filters. And in a conventional low tar this by-pass air has to fight its way through the dense filter fibers. You have to pull it through. And it's hard work. Not so in BARCLAY. The by-pass air just zips down the grooves. Effortlessly. Low tar -- easy draw. Let's look next at panel ratings of strength and flavor. The KS prod- uct first. The consumer ratings are on a scale of I to 9. Nine means a lot -- one means very little. In terms of strength and tobacco flavor, BARCLAY is right in there with Merit; Cambridge and Carlton are far behind. The same holds true for BARCLAY 100s -- as strong and flavorful as Merit. Goodbye Cambridge. Well, panel results are fine but the real tests are large scale con- sumer surveys. And our Marketing Research Department did a lot of them. We were well pleased with the results. The I mg tar KS product blew other 1 mg products out of the ballpark. We had never seen preference results like these before in blind tests. Even KOOL, the #I menthol, only beats Salem 55/45 in blind testing. 1 mg BARCLAY KS achieves the same preference as a cigarette with six times the tar -- VAntage Ultra Lights.

And we have Just completed tests against Philip Morris' new entry -- Merit Ultra. 500 smokers comparing Merit Ultra with four times the tar to BARCLAY said BARCLAY is stronger, more flavorful and equally preferred. For 3 mg tar BARCLAY 100's, we set our sights even higher. We wanted to match Merit 100's at 10 mg tar and, as you can see, we very nearly have. Male full taste 47%, and male Hi Fi 51% smokers like BARCLAY 100's just as well as Merit with 230% more tar. A substantial 42% of female smokers find it acceptable. But what is even better is that these are blind tests. We know that when tar levels are revealed, there are substantial preference shifts to the lower tar products. Well, I think you'll agree we have some good products. And, by the way, the 1 mg tar box product is just like the I mg tar soft cup product. Just as KOOL Box or Marlboro Box are. And I think you'll find a lot of those M~arlboro Box people going for BARCLAY Box. And as you'll see, later we have some fantastic advertising. I do want to explain one line in it -- 99% tar free. Because that simple, original and refreshing way of drawing attention to BARCLAY's ultra low tar has produced a chorus of moans and groans from people who wished they had thought of it first, but didn't. So what does 99% tar free mean? It meas that i% or less of what comes out of the cigarette when you smoke it is tar. The other 99% is some- thing else. Mostly air, a little water vapor, and some trace gases. O 00

Let's look at the actual numbers. The percentage tar free is one hundred times the total weight of smoke minus tar weight, all divided by ~ weight. For BARCLAY KS this is 357 mg total weight minus i mg tar for a tar free content of 99.7%. Now you might ask how can such a little bit of tar go such a long way. Well, the right stuff presented in the right way can have a large effect. KOOL smoke is 99.9% menthol free. But that zero point one percent menthol content of the smoke makes itself known. In closing, I'd like to address the subject of "how can BARCLAY taste so good?" Well, I'm not really going to give you the answer. In part, because we don't fully understand it ourselves, and some parts that we do under- stand are opening up new horizons in ultra low tar technology that we need to keep close to our chests for now. But one thing is very clear. A steak tastes a whole lot better if you don't have to break your jaw chewing it. A cigarete tastes a whole lot better if you don't have to turn your socks inside out to suck in a mouthful of smoke. And, as you'll remember, BARCLAY has a very easy draw. 0O

But the question of BARCLAY's good taste is something that has tor- mented Philip Morris for the last five months. And they have tried every trick at their disposal to knock us off course. And we want you to know what they have been up to, because lately, they haven't been fighting very fair. Their first move was fair, but clumsy and ill-informed. They said they had a patent on our filter. Of course, our legal staff had done its homework and we knew Philip Morris were wrong. Bob Johnson's patent has been allowed by the U.S. Patent Office and is assigned to Brown & Williamson. A few weeks later, they said the grooves collapse when people puff on cigarettes. Now, it's true you'll see the cork tipping squash into the grooves sometimes when you crush out a cigarette, but that doesn't happen in normal smoking of it. We have done experiments with double reinforcing to proove it. I guess they did the same, because a few weeks later they came back and said that didn't happen either. The real problem is they said, that the inside of the smoker's lips fold over the groove openings when they puff, thus blocking off the diluting air. Well, we have a lot of evidence that smokers don't smoke BARCLAY any differently, at least in so far as the tar and nicotine they get, than any other ultra low tar cigarette. They do smoke BARCLAY differ- ently though in terms of enjoyment. So our general counsel told the Philip Morris general counsel, in the most polite and appropriate language, to shove it.

But the story doesn't end there. We have many instances in the test market area of Philip Morris salesmen or employees telling BARCLAY pur- chasers and consumers that the cigarette is somehow fooling the smoking machine. Well, the cigarette is fooling their scientists. And it is making fools of their senior management. But it is not fooling the people who are buying it. They buy it because they like it, and they like it because it's 99% tar free and the pleasure is back. And you can feel quite confident in telling them so. O0 -d

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