Tobacco Documents Online

TIMN 446066 1 Y a i , r r 1 s 9 f Y t ~ i 4 1 Ai.i:. a`ls 1iM\ • 0 { / 1 i A . i l . w 1 4 , AMU '~~~'..~~:~ ,~,l~~ ,~- .. . !. ' ~r j~ ; r+` 1±.~ M m.sr_~~.a v !. . ., ! 1 .iggett & Myers Tobacco ComQany i4nnuafi Report 1964 ' yi. ~4 ~t... ~ .. a'' .

Cover: Tumbling shredded tobacco in the manufacturing process provides a golden background for a full-grown tobacco plant. TIMN 446067

Contents Letter to Stockholders page 2 Scientific Research; Diversification 3 Domestic Advertising, Marketing, and Sales 4 Foreign Business; Taxes Manufacturing ti 7 Leaf Tobacco 8 Financial Review Hiohlights of Operations l 10 Disposition of Total Earnings 11 Consolidated Balance Sheet 12 Consolidated Earnings and Retained Earnings 14 Notes to Financial Statements and Opinion of Certified Public Accountants 15 Ten Years in Review 16 Officers and Directors Inside back cover Stockholders' Annual Meeting The annual meeting of stockholders will hc held on Tuesday, April 27, 1965, at the Hotel Commodore, 42nd Street at Lexington A%,t,- nue, New York City, at 2:30 P.M., Eastern Daylight Time. A formal notice of this meeting, together with the proxy and proxy statement, will i),- mailed to stockholders on March 26, 1!t1,-1 Stockholders who are unable to attend th,- meeting are urged to sign their proxies , n l return them promptly so that the stock of il,-, Company will be represented as fully as 11, sible at the meeting. Today the Company is owned by appro\i- mately 47,000 stockholders. About 81 per c(-i,t of the total common and preferred stock voted by person or proxy at the last annud i stockholders' meeting on March 31, 1964. 'TIMN 446068

Milton E. Harrincton, President and Chief Executive Officer. To the Stockholders: Earnings per share of common stock for 1964 increased 6.9 per cent to $6.37 from 55.96 for 1963. This was achieved despite a decline of less than 1 per cent in net sales of $502,666,055. This loss was small in view of the estimated 3 per cent decline in total domestic cigarette consump- tion. Two of our principal brands, L&M and CHESTERFIELD, had lower sales, as did most other cigarette brands. Our third principal brand. LARK, was estimated to have the highest gain in the industry. Our smoking tobacco sales increased during the year; and our ne«, premium-quality, aromatic MASTERPIECE, which went into nation<<I distribution late in the year, showed good early results. During 1964 we acquired the interest of the minority stockholders of our subsidiary, The Pinkerton Tobacco Company, giving us 100 per cent ownership. Historically, our proportionate share of Pinkerton's earnings has been included in our earnings. Pinkerton's sales, heretofore not in- cluded in our sales, are included in 1964 sales, and for comparative pur- poses our 1963 sales have been restated. Although total domestic cigarette sales declined considerably in tht~ early part of the yeur, following the Report of the Surgeon Generll's Advisory CommittE e on Smoking and Health released on January 11, 1964, losses wert tiuhslmntially lower by midyear, and, by the latter par! of 1964, sales ~~ t rt .I1 ~ 1u k f,ar-earlier levels. The United States Depart- ment of Agricult 1r1~i~ ~i a decline in domestic consumption of ap- proximately 3 per i i-itl Im ;,iis-1 and forecast a moderate increase in ltlti. . 2 TIMN 446069

Liggett &>lyers Tobacco Compnnr nmt SubsnttaryCompanies tbert F. Hunsicker, President of len Products Company, Inc., scusses plans for marketing ALPO -meat dog foods with Milton E. irrington. Liggett & Myers took the st major step in its diversij'ication ogram with the purchase of len Products in late 1964. In April, 1964, all major cigarette manufacturers in the United States, including your Company, voluntarily adopted a Cigarette Advertisina Code designed to curb "health appeal" and appeals to youth in domestic cigarette advertising. Robert B. NIeyner, former Governor of New Jersey, was named Code Administrator in July and opened his headquarters in New York City in September. The Code went into effect officially on January 1, 1965, and all advertising currently on view has had Code approval. Scientific Research Many responsible scientists and many comprehensive research in- vestigations have indicated that the Report of the Surgeon General's Advisory Committee on Smoking and Health is not conclusive. All ex- cept the most biased parties involved in the tobacco and health contro- versy agree to two basic concepts: (1) that a good deal more scientific research is urgently needed, and (2) that the basic issues can only be resolved in, and that the final answers will ultimately come from, the research laboratories. For these reasons, this Company has continued to give first priority to intensive scientific research, particularly long-term basic investiga- tions in our Research Department. One spectacular result of this type of fundamental research is the LARK charcoal-granule filter, which was developed in our own laboratories. The details of this research were widely circulated in both scientific and lay publications. We have continued to expand our own research program, which in- cludes our sponsorship of a broadly based biological research program in the Life Sciences Division of Arthur D. Little, Inc., in Cambridge, Massachusetts. We will continue to make major commitments for out- side research, including substantial grants to the Council for Tobacco Research-U.S.A., and the American Medical Association Education and Research Foundation. Diversification The Company for some time has been actively investigating possible acquisitions and mergers to diversify its business. As reported in the December 1 dividend enclosure, we have taken our first major step to diversify our business with the purchase of Allen Products Company, Inc., believed to be the largest manufacturer of all-meat dog foods. Located in Allentown, Pennsylvania, Allen Products processes and packs the ALPO line under such trade names as Beef Chunks, Lamb Chunks, Liver (:hunks, Horsemeat Chunks, Meat Balls with Gravy, Chicken, and ' ti( r,iml,le" - a successful new egg-and-meat mixture. Veterinarians r- t tnint nd ALPO because it is 100% all-meat. ALPO products are pi t, ,.I 11 1h,r than most dog foods because they are 100 0 meat, whereas ~•,-,t ,-+h, rdua foods contain considerable amounts of cereal fillers -,t,) :~) t,, :nut.h as 90 per cent. 3 TIMN 446070

Distribution of ALPO, widely known as the leading all-meat dog food in the east. has been expanded to the south and west, into Canada, and will eventually include the southwest and far west. The expansion pro- gram at Allen Products includes a new ALPO processing and packing plant no«• under construction in Crete, Nebraska. We will continue our broad survey to find additional desirable diversification opportunities for your Company. ])ocnestic \d\ ortisin,. NIarketing, <+nd Sales In the domestic cigarette market, 1964 was characterized by the con- tinued shift in consumer preference from non-filter to filter cigarettes, the introduction of many new brands, more frequent brand-switching among consumers, and increased competitive activity in sales and adver- tising to meet changing consumer preferences. An important factor in this changing cigarette market was the out- standing success of our new LARK brand, which has been generally credited with starting a new trend in consumer tastes. Its success was followed by the appearance on the market of a number of new competi- tive brands with charcoal-type filters. The LARK filter, consisting of ti~•o outer filters and an inner chamber of charcoal granules, delivers a rich, smooth taste that has been enthusiastically accepted by consumers. The advertising theme for L&M, our largest selling brand, was changed in early 1964 to: "%Make the Logical Move to L&M," a sales appeal ad- dressed to smokers who prefer rich flavor in a filter cigarette. 4 Domestic and foreign distribution problems usually involve mure than one department head. Shown here are Edivard J. Parrish, Craydon B. Leake, Samuel White, and Lawrence W. Bru ff, Vice-Presidents of Export Snles. Domestic Sales, Marketin<,. and Advertising, respectively. TIMN 446071

Liggett & Nty'ers Cobacr.o Compan} nnd Subvvdiar} Compan es ,NIemhers of the Bocu•d of Directors inclu<le (from left to right): Freclerick Sheffield, Partner of 6Vebster Shef fielct Fleischmnnn Hitr.hcor.k & Chry stie; 6Vifliatn A. Blount: Frnnk Tolhott. _Jr.. Chuirtnnn of the I3ortrd of Dan River Mills. Llc.: nncl Frmlcis hL Horttn. I'ice-Prestdent and General Counsel. Not present: Fton•urcl LV. McCull, Jr., C'ice-Chairmcni, Chemical Bank New York Trust Cwnpany. CHESTERFIELD, our major non-filter brand, also took on a ne~v look in 1964 with its "Chesterfield People" campaign: "They like a milcl smoke but just don't like filters. (How about you?)" We have increased our activities in the growing pipe tobacco market, including the introduction, in late 1964, of a new premium-quality, aromatic pipe tobacco called MASTERPIECE. As we stated at the time: "Never before has a pipe tobacco been given such a big-budget, big- name send-off." The "big-name" referred to _ actress Eva Gabor, the IMASTERPIECE spokeswoman in advertising, and the "big-budget" re- ferred to the national advertising schedule, unprecedented for a smoking tobacco. MASTERPIECE has received wide attention in the press and good consumer acceptance. Our supermarket merchandising program has been widened in scope to give better and more efficient services to more retail operators. ~l'e have made wider use of special promotions to gain better distribution through tobacco wholesalers, vending machines, military installations, and other segments of the trade. We have also used special consumer promotions, including introductory offers on LARK and MASTERPIECE. During 1964 we adopted a sales employment practices program and a comprehensive salcs tle%•elopment program. We have conducted more frequent and more rt~~,;ul,tr reloional sales meetings, with special emphasis on educating our salt~s m~tn~tgers to the concept of "total marketing." 5 TIMN 446072

Financial affairs are under the direction of ]• Bowling Anderson, Senior Vice-President, Finance (center); Ralph P. Moore. Treasurer (right); and R. Haywood Hosea, Comptroller. Foreign Business Export sales of our major cigarette brands, in 134 countries around the world, continue to be an important share of our total sales. The greatest success during the year was the outstanding growth in sales of LARK, which is today a leading export brand to many countries. This is especially important to us because the trend from non-filter to filter-type cigarettes is now even greater abroad than it is_ here. CHESTERFIELD export sales, like the export sales of other non-filter cigarettes, have con- tinued to decline. Our association with Ed. Laurens, a widely known company in Europe that manufactures and distributes L&M cigarettes in Switzerland, has been a rewarding one. We announced recently that La Tabacalera hiexi- cana, one of the largest cigarette manufacturers in Mexico, would soon begin to make and distribute the L&M brand in that country. We an, continuing to investigate other similar ventures that have good pruniisE, of contributing to the growth of our total foreign business. Taxes Federal and state incnme taxes and franchise taxes in 1964 tot<ilt~cl $25,895,163, or Sti..-),i per sh<tre of common stock. For comparison. net earnings per sharv nf tht. <<,mmon stock were $6.37. Federal and oth(,r f,\c iw tav,s totaled $209,502,000. The federal exc:ise tax rate is eight c:frntti (in e,,( h package of cigarettes. 6 TIMN 446073

Liggett & tlyers Tobacco Company and Subsidiary Companies Although the industry does not collect state and municipal excise taxes, these add up to substantial additional taxes paid by the consumer. These state and local taxes amounted to approximately $1.3 billion in 1964. This is in addition to the total of approximately $2 billion in federal excise taxes. Five states increased cigarette excise taxes during 1964, and Colorado adopted a cigarette tax for the first time. Cigarette excise taxes are now levied in forty-eight states and the District of Columbia. Fifteen of these states tax at the rate of eight cents per pack. equal to the federal excise rate, and Mississippi raised the rate from eight cents to nine cents last year. Manufacturing The Manufacturing Department's greatest challenge during the past year has been to maintain adequate production schedules so that output of the LARK charcoal-filter cigarette would keep pace with the rapidly accelerating consumer demand for the new brand. Special machinery was required to manufacture LARK with its unique filtering unit. This machinery was designed and built by the Company's Manufacturing Department, and additional conversions and installations have continu- ally been made as needed. The design of this machinery, and of the LARK filtering unit, has not been matched by other manufacturers. Liggett & Myers' plant locations include modern cigarette factories in Durham, North Carolina, and Richmond, Virginia; a pipe and chewing 7 Executive personnel in rosvrrrr I nnrl manufacturing include (Irrrnr I1-tt tu right): Dr. William W. Bnrr-. /r . Director of Research: )rrnuthun ll'. Old, Jr., Vice-President. :1~ nr ~nr to the President; Lop D. "('hrrn (r n. Senior Vice-PresidenL .~Irinrrr : runng and Leaf; and C. Gricrr M, %hrl!,rn. .r _rrun, Branch Manager, Richnrnn,Il k TIMN 446074 I

tobacco factory in St. Louis, Missouri; and leaf tobacco processing plants and storage warehouses in Durham and Rocky Mount, North Carolina; Danville, Virginia; and Lexington and Paris, Kentucky. The Pinkerton Tobacco Company's scrap-tobacco plant is located in Toledo, Ohio. A wholly-owned subsidiary, Gary Tobacco Company, has plants in Izmir, Turkey, and in Cavalla and Xanthi, Greece, for buying and processing Turkish-type leaf tobaccos. Leaf Tobacco The total value of leaf inventories at year end was $264,643,678. According to United States Department of Agriculture figures, the 1964 flue-cured tobacco crop totaled approximately 1,473 million pounds, compared with a 1963 crop of 1,463 million pounds. The 1964 crop sold for an average market price of 58.1 cents per pound, compared with 57.7 cents in 1963. The estimated burley crop for 1964 was 660 million pounds, compared with 755 million in 1963, and the estimated average market price was 60.2 cents in 1964, compared with 59.2 cents in 1963. On behalf of the Board of Directors, I take this opportunity to express our grateful appreciation to the employees for their loyalty and good performance, and to thank all stockholders for theirinterest and support. Respectfully submitted on behalf of the Directors, March 12, 1965 ; "~ ~-C.. ~ Milton E. Harrington President IN MEMORIAM We record with deep sorrow the death on July 9, 1964, of Zach Toms, who was Chair- man of the Board. He had served as Chief Executive Officer of the Company for only sixteen months, but in that brief period he initiated many programs which will be in- valuable to the Company for many years. Mr. Toms was the son of Clinton White Toms, who served as President of this Com- pany from 1928 to 1936. In four decades, he moved up from the most modest assignment to the most difficult. He was elected a Direc- tor in 1945, Secretary in 1947, a Vice-Presi- dent in 1951, Executive Vice-President in 1959, President in 1961, and Chairman of the Board in 1964. On July 14, 1964, the Board of Directors, in adopting a resolution of condolence to Mrs. Toms and her family, recorded their "appreciation of the life and friendship of one who gave fresh meaning to the word gentleman," and "gratitude for services splendidly rendered and particularly for his initiative and imaginative leadership during the all too short period during which he was Chief Executive Officer." TIMN 446075