Tobacco Documents Online

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PROTECTED BY MINNESOTA TOBACCO LITIGATION PROTECTIVE ORDER Exeeutlve O~ee, ~ 50 East ~2nS Street, Nelv York 17 ANNUAL REPORT- 1959 FO~ THE lEAR ENDED DECEMBER 31 CONTENTS HIGHLIGHTS 2 PRESIDENT'S LETTER 3 OPERATIONS AT A GLANCE 14 CONSOLIDATED STATE~IENTS OF INCO~IE AND RETAINED EARNINGS 15 CONSOLIDATED BALANCE SHEETS 16 NOTES TO STATEMENTS 18 SUPPLEMENTARY FINANC/AL INFORMATION 19 AUDITOR$' CERTIFICATE 20 DIRECTORS AND 0FFICLT~ 21 TEN-YEAR FINANCIAL REVIEW 22 YOUR COMPANY'S PRINCIPAL PRODUCTS 24 MNA T 00028948

PROTECTED BY MINNESOTA TOBACCO LITIGATION PROTECTIVE ORDER HIGHLIGHTS Per Common Share Net income ............. Dividends paid ............ Net saJes ............. Income, before taxes on income ...... Net income ............. Dividends paid (common and preferred) .... Portion of net income invested in assets used in the business and to provide for debenture sinking fund requirements .......... Current assets, December 31 ....... Current liabilities, December 31 ...... Net working capital, December 31 ...... Number of stockholders, December 31: Common ............. Preferred ............. 1989 $9.23 5.00 $1,161,376,858 136,071,270 63,248,270 35,729,596 27,518,674 728.028,304 140A03,931 58?,624,3?3 87,T72 7,172 1988 $8.55 5.00 $1,105,176,334 124,994,242 58,856,242 35,729,596 23,125,646 • 717268,082 143,179,420 574,088,662 88,202 7,177 MNAT 00028949 pA~E T'WO

PROTECTED BY MINNESOTA TOBACCO LITIGATION PI}OTECT/VE ORDER THE PRESIDENT'S LETTER To Our Stockholders @ @ FEBRUARY 4, 1960 T HIS report covers operations of The American Tobacco Company, includ- ing who ly-owned subsidiaries, for 1959. The year 1959 was the eighth in succession to show a gain in net income and the fifth successive year in which net income reached a new high, $63,248,270 in 1959 as compared with $58,856,242 in 1958. Dollar sales were $1,161,376,858 as compared with $1,105,176,884 in 1958, a gain of $56,200,524. Unit cigarette sales in 1959 were higher than in 1958. SALES GAIN CONTINUES PALL ]~IALL Cigarette,~ accelerated their rate of gain in 1959 and ended the year with a very substa~atial increase. The brand's strong position, both within the king-size market and with respect to competitive brands in gen- eral, was further improved. Independent analysts estimate that PALL ~dALL Cigarettes account for more than 70% of all nonfilter king-size sales and for well over 257~ of all nonfilter sales in the United States. Industry sales of non fiber standard-size cigarettes continued to decline, and LUCKY STRIIC.E Cigarettes were affected by this trend. However, the rate of decline for LucKa' STRIKE volume was less in 1959 than it was in 1958. Unit sales of DUAL FILTER TAREYTON Cigarettes increased vigorously and consistently during 1959. Combining fine tobacco with activated char- coal filtration--which has been proved to make cigarette smoke exception- ally mild--Dt:AL FILTER TARE':TON has impressed the filter-smoking public with its taste and mildness, and has already achieved status as a major filter brand. The Company's cigarette volume in both the filter and nonfilter fields increased in 1959. In August 1959, RIVIERA, a new filter-menthol cigarette, was intro- duced in a small number of selected markets. ~IVIERA is "air-cooled" with MNAT 0002S950 pACI~ T]tt[I E E

PROTECTED BY MINNESOTA TOBACCO LITIGATION PROTECTIVE ORDER SALES GAIN CONTINUES i ! ° II a double ring of tiny vents near the filter tip, which is of the twin or com- pound type. Further market testing of RIVIERA is taking place. Export unit sales ( tax-freei of cigarettes manufactured by the Company in the United States were lower in 1959 than in 1958. However, this was more than offset by the increase in unit sales of cigarettes manufactured and sold abroad by J. Wix & Sons Limited, the Company's English subsidiary. In domestic cigars, unit sales of RoI-TAN were approximately the same as in 1958. Ro1-TAN continues as America's largest-selling 10¢ cigar. A new 5¢ size, RoI-TAN Trumps, was introduced early in 1959 in selected markets with very gratifying results. The RoI-TAN Cigarillo, introduced in 1958 at 5¢, continued to show satisfactory sales progress. The RoI-TAN Golfer has a strong position in the 4¢ market. Combined unk sales of your Company's clear Havana cigars again increased. These brands---among them LA CORONA, ANTONIO y CLEOPATRA and BOCK y CA---comprise the largest-selling Bonded Clear Havana line. Industry sales of smoking tobaccos and sales of your Company's brands of these products declined in 1959. A list of the Company's major cigarette, cigar and smoking tobacco brands appears on page 24 of this report. In their own investment interest, stockholders are urged to use these quality products themselves, to bring them to the attention of friends who smoke, to use them as gifts, and there- by to assist in promoting them. MNAT00028~I pttGE FOU]I

PROTECTED BY MINNESOTA TOBACCO LITIGATION PROTECTIVE ORDER EARNINGS RISE AGAIN Earnings after taxes amounted to $63,248,270--another record high-- as compared with $58,856,242 in 1958. Further improvement in the operating efficiency of the Company's business, in addition to higher sales, contributed to the rise in net income. Based on 6,512,522 Common shares outstanding at the year end, net income amounted to $9.23 per share as compared with $8.55 in 1958. DIVIDEND RECORD MAINTAINED The Company's record of continuous dividend payments on the Com- mon stock was extended for the 55th consecutive year. Total payments in 1959 amounted to $5.00 per share, including four regular quarterly divi- dends of $1.00 each and an extra dividend of $1.OO. The total amount of dividends paid in 1959 on both Common and Pre- ferred stock was $35,729,596. The balance of 1959 earnings amounting to $27,518,674 was retained for use in the business. On January 26, 1960, a regular dividend of $1.00 per Common share and an extra dividend of $1.00 per Common share were declared, making a total dividend of $2.00 per share to be paid on the Common stock on March 1, 1960, to stockholders of record February 10, 1960. STOCK SPLIT RECOMMENDED The Board of Directors has recommended to stockholders that action be taken to split the Common shares on a 2 for 1 basis. This recommendation is to be considered at the Annual Stockholders' Meeting on April 6, 1960. At the same time, the Board of Directors has announced its intention, depending on conditions at the time, to increase the regular quarterly divi- dend on the Common stock payable on June 1, 1960. The increase would be equivalent to 60 cents per present Common share on an annual basis, or 15 cents per share quarterly. This would make the regular quarterly divi- dend (exclusive of any extras) on each of the split shares 571~ cents per share as of June 1, 1960--equivalent to $1.15 per share on the present shares. MODERNIZED RETIREMENT PLAN AND NEW PROFIT-SIIARING PLAN FOR EMPLOYEES PROPOSED Recognizing that conditions have changed since the present Retirement Plan was first adopted in 1949, your Management for several years has MNAT 00028952 pAG~ FI~E

PROTECTED BY MINNESOTA TOBACCO LITIGATION PROTECTIVE ORDER Q pACF Sr'X been working to improve it. The modernized Retirement Plan, which is being submitted to the stockholders at the Annual Meeting in April, incor- porates many new features, including coverage of more employees and im- provement in pa~t service benefits, and furthermore is financially stronger by reason of the proposal to fund the Plan by setting aside money in a trust fund for that purpose. In addition to the revision of the Retirement Plan, stockholders will be asked to vote at the Annual Meeting on the adoption of a Profit-Sharing Plan under which regular full-time employees will share in Company profits. Profi=-shartog plans have become widely adopted as an essential ele- ment of sound corporate practice and wholesome, effective employee rela- tions. The principle has been recognized and accepted in the United States Internal Revenue Code, and the number of publicly-owned COrporations in American industry that have installed such plans runs into the thousands. Since profit-sharing gives employees a direct stake in the profitable opera- tions of the Company, your Management believes the Plan proposed will encourage all participant~ to greater effort~ on behalf of the Company and its stockholders• As certain officers and employees already participate in incentive com- pensation under Article XII of the Compalay's By-Laws, stockholders wii] also be asked to vote on an amendment to reduce the deferred benefit for the participants under this Article in order to avoid duplication of benefits. MNAT (~028953 e

PROTECTED BY MINNESOTA TOBACCO LITIGATION PROTECTIVE ORDER FINANCIAL POSITION STRONGER The Company's financial position continued to grow stronger in 1959. Notes Payable were reduced to $56,000,000 at the end of the year as com- pared with $66,000,000 a year earlier. Furthermore, the Company was able to eliminate its Notes Payable during the summer months when working capital demands were at a minimum. Higher interest rates that prevailed on sbort-term borrowings during 1959 offset some of the benefits derived from the improved working capital position. Nevertheless, total interest on Notes Payable was about $1,250,000 less than in 1958. Long-term debt was $14,749,000 lower at the end of 1959 compared with the previous year, as a result of retirement of debentures through op- eration of the Sinking Funds. This reduetlon, together with the addition of $27,518,674 of retained earnings to net worth, produced a further im- provement in the ratio of funded debt to net worth. Thus, funded debt was 29~ of net worth at the end of 1959 as compared with 78% ten years ago. In the absence of unusual developments, )'our Management does not anticipate the need for any new financing in the foreseeable future. i PARTIAL EXCISE TAX RELIEF Contributing moderately to the improvement in financial position dur- ing 1959 was a decision by the United States Treasury Department to grant NEW HIGH FOR NET INCOME kUlli~l d ~5 T ~-~ ~--~ , L I { ! i ...... ' I t) MNAT !~028954 pACE IIP~I~

PROTECTED BY MINNESOTA TOBACCO LITIGATION PROTECHVE ORDER FINANCIAL POSITION STRONGER i ~C~W|M IMST G p~CE ~ICIIT partial relief to the tobacco industry by putting into effect on June 24, 1959, a return and deferred payment system for excise taxes, as authorized by tile Revenue Code of 1954. This provides for payment of excise taxes on a semi-monthly basis instead of daily as heretofore. Even after this partial relief, the method of paying tobacco excise taxes still impeses an unfair burden on the industry. A more equitable system would permit payment approximately everb' thirty days, and your Com- pany will continue to urge this change. Excise taxes on your Company's products during 1959 totaled $480.137,000. Federal and other taxes on income amounted to $72,823,000 in 1959 as compared with 866,138.000 in 1958. Taxes on income in 1959 amounted to $I1.18 per Common share as compared with net income of $9.28 per share. The Company's total tax bill for 1959, including income, excise, social security and other taxes, amounted to $614,219,000. CAPITAL EXPENDITURES Since certain major expenditures for the purchase of modern machin- ery and equipment had been completed in 1958, total capital expenditures in 1959 declined to $9,121,000 compared with $10,950,000 in the previous year. Depreciation charged to cost and expense in 1959 amounted to $5,215,154. Capital expenditures in 1959 were mainly for machinery and other MNAT 00029955

PROTECTED BY MINNESOTA TOBACCO LITIGATION PROTECTIVE ORDER equipment to improve the efficiency of handling and processing tobacco in our cigarette and cigar factories and for additions to and improvements in buildings. At the present time no major outlays for plant or equipment are anticipated. LEAF TOBACCO Production of all types of leaf tobacco in the United States in 1959, estimated at 1,800 million pounds, was nearly 4% above 1958. However, except for 1957 and 1958, this year's crop was the smallest since 1943. The acreage planted to flue-cured and Burley tobacco, the principal types used in making cigarettes, continues to be restricted by the Government. The flue-cured crop in 1959 totaled about 1,079 million pounds, slightly smaller than in 1958, and the average selling price for the crop on the auction markets was 57.74( per pound, about the same as the 1958 average price of 57.70¢ per pound. The Government price support level for the 1959 crop was 55.5( per pound. The harvest of Burley tobacco in 1959 was about 500 million pounds, roughly 7~) higher than in 1958. Although record-high yield per acre was achieved, the 1959 crop was still below the average for the past ten years. The quality of the 1959 Burley crop was affected somewhat by excessively hot and humid weather during the curing season, with the result that the average auction market price of 60.7¢ per pound through the end of the year was 99~ lower than the average during the comparable period in 1958. The Government price support level for the 1959 crop was 57.9( per pound. Approximately 905~ of the 1959 Burley crop had been sold on the auction markets by the end of the year as compared with 83% in 1958 for the same period. The Company's constant effort to improve the quality of its tobacco products is, of course, dependent in the first instance upon the purchase of the better grades of leaf tobacco. In llne with this policy, your Company's purchases on the auction markets were concentrated on the finest grades of leaf tobacco available. GOLDEN BELT MANUFACTURING COMPANY NOW XX HOLLY OWNED For many years the Company owned about 95% of the capital stock of Golden Belt Manufacturing Company which manufactures printed labels, cartons, cloth and cloth bags. Much of its output is used by this Company --the balance is sold to others. MNAT 00028956 pACE N1NE