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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

PROTECTED BY MINNESOTA TOBACCO LITIGATION PROTECTIVE ORDER Since April 1957 we have been acquiring the shares owned by the minority stockholders and finally completed acquiring them in January 1959. The American Tobacco Company now owns 100% of the capital stock of this company and, as indicated elsewhere in this report, the financial results of this company are now consolidated with that of the parent Company, CONTINUING IMPROVEMENT IN MANUFACTURING EFFICIENCY While the production of tobacco products of top quality must start with the best tobacco available, the manufacturing methods used in producing the finished product contribute importantly to quality and to the consumer acceptance of our products. Since the end of World War II, substantial advancement has been made in the manufacturing facilities and methods used in the handling of leaf tobacco, its preparation for use in the finished product and for assuring that the finished product measures up to the standards of quality set by the Company. These improvements, both in methods and in equipment, have also contributed to economy of manufacture with resultant beneficial effect upon profit margins. Your Company continues to explore the possibility of improving manu- facturing methods that will not only safeguard the standards of quality of its products but will also produce greater profits from operations. Q ADVERTISING AI~D SALES PROMOTION With the number of competitive cigarette brands continuing to in- crease, your Company's advertising and sales promotion programs are under constant scrutiny with the object of improved efficiency and maxi- mum economy. It is the policy of The American Tobacco Company to keep its brand promotion in good taste to match the good taste of its products. Virtually all major advertising media, including television, radio, news- papers, magazines and billboards, are utilized to inform the smoking public of the superior quality of our tobacco products. The efforts of our Sales Organization supplement, and are coordinated with, product advertising. Throughout the nation, members of the Sales Organization strive to secure the widest possible distribution for our brands. They reinforce the national advertising effort by placing point of sale dis- plays in retail outlets and by direct sampling of consumers. They also sup- ply service and assistance at the wholesale and retail levels. MNAT 00028957 p/t GI~ TEN

PROTECTED BY MINNESOTA TOBACCO LITIGATION PROTECTIVE ORDER $ SI~IOKING AIND HEALTH Despite repeated publicizing of certain statistical studies by anti- tobacco theorists, no reliable evidence has been produced in the experimental or pathological fields to support the theory that cigarette smoking causes lung cancer. After five ),ears of studies, for example, the British Empire Cancer Campaign reported "striking negative results" from animal experi- ments involving inhalation of tobacco smoke. The anti-cigarette stetisties themselves have increasingly come under attack. Last year, for example, the British Medical Journal published a study involving the heaviest cigarette smokers in the world, native white males in South Africa. This group was found to have a relatively low lung cancer death rate compared with that of immigrants to South Africa from Great Britain and other European countries who smoke less. The cause of cancer remains unknown and many reputable SCientists and scientific bodies continue to refuse to accept the anti-cigarette theory of lung cancer. In December 1959, commenting on a review article of the United States Public Health Service, the Journal of the American Medical Association stated that an "all-or-none authoritative position" in this mat- ter is not warranted by the evidence to date. STOCKttOLDERS' ANNUAL MEETING The Annual Meeting of Stockholders will be held on Wednesday, April 6, 1960. Formal notice of this meeting, together with the proxy and proxy statement, is enclosed with this report. Before closing this letter I should like to acknowledge the many com- munications we have received from our stockholders during the year. Especially gratifying have been the stockholders' continued loyalty to the Company's products and their efforts to promote our brands. On behalf of the Board of Directors, I am pleased to express our appre- cialion for the cooperation of our customers and the loyal service rendered by our employees. PAUL M. HAHN President MNAT 0G0299S9 pACE EI.E~'E N

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PROTECTED BY MINNESOTA TOBACCO LITIGATION PROTECTIVE ORDER H[RB[RTTAREYION CIGARETTES MODERN SIZE k

PRO1 ECTED BY MINNESOTA TOBACCO LITIGATION PROTECTIVE ORDER 1959 OPERATIONS AT A GLANCE d d The Company received for goods it sold and from dividends, interest and miscellaneous.. $1,1§1,88B,000 This is how it was used or set aside 52,9% Taxes (excise, income, socia I security, etc.) $614,219,000 23.3% Tobacco (including applicable expenses) $ 271,052,000 17.8% Wages, Goods, Services, etc. $207.463.000 ,5% Bond and Bank Interesl $ 5,906,000 33% DividendstoStockholders $ 35330,000 2,~.% Earnings Retained to Meet Future Needs $ 97,518,000 MNAT 00028961 p~GE FOURTEEN

PROTECTED BY MINNESOTA TOBACCO LITIGATION PP-OTECTiVEEORDER Consolidated Statements of INCOME AND RETAINED EARNINGS e o For ]'ears E~zded December 3;: Net Sales ............... Cost of sales, selling, general and administrative expenses .............. Operating Profit ............. Other income ............. Interest and related charges ........ Other deductions from income ....... Total deductions ....... Incorn~, before taxes on income ........ Federal and other taxes on irlcome ...... Net income .............. Retained earnings, beginning of year [includes December 31, 1957, retained earnings of a previously unconsolldated subsidiary) ..... Cash Dividends: Common stock, $5 per share ....... Preferred stock, $6 per share ....... Total dividends ........ Retained earnlngs, end of year (Note R) ...... De ptecillt ion provided ~nd charged to COSTS and expenses amounted to $5,215,154 in 1959 and $4,g49,930 in 195B, 19B9 $1,161,376,858 1,019,129,251 195~ S1,105,176,334 971,131,896 142,247,607 134,044,43B S11~15 479,879 142,759,022 134,524,317 5,906,001 761,751 8,005,598 1,524,477 6,B87,752 9,530,075 136,071,270 124,994,242 72,823,000 66,138,000 63,248,2"/0 55,856,242 22"/,589,'/O? 204,263,061 290,637,977 263,119,303 32,562,610 32,562,610 3,166,986 3,166,986 35,729,596 35,729,596 _$ 254,508,381 $ 227,389,707 MNAT 00028962 pA(;l£ FIF'FEE %

PROTECTED BY MINNESOTA TOBACCO LITIGATION PROTECTIV_E ORDER CONSOLIDATED BALANCE SHEETS ASSETS December 31, Cash ............... ACCounts receivable, customers ........ Leaf tobacco, manufactured stock, operating supplies, etc., at average cost ........... Miscellaneous accounts receivable ...... Total current assets ...... Investment in and advances to an unconsolidated sub- sidiary, at amounts not in excess of cost (Note S) Insurance deposits and miscellaneous investments, Land, buildings, machinery, etc., at cost, )ess allow* ance for depreciation, 1959, $55,844,776; 1958, $52,767,525 ............. Prepaid expenses and deferred charges ..... Brands, trade-marks, patents, good will, etc ..... lglI $ 17,740,414 51,910,968 G56,680,134 1,696,788 728,028,304 5,955,069 1,113,692 67,776,385 3,652,437 1 $806,525,888 IIIsl 41 $ 20,696,311 46,942,630 648,310,916 1,318,225 717~268,082 7,985,750 1,286,764 ~ 64,894,849 5,096,257 1 $796,531,703 MNAT 0002896~ P~GE SIXTEE*'~ - i

PROT EC FED BY MINNESOTA TOBACCO LITIGATION PROTECTIVE ORDER O Q LIABILITIES Deeeml~¢r 31, Notes payable ............. Loan payable by British subsidiary ....... Accrued taxes ............. Accounts payable and accrued expenses ..... Dividend on preferred stock for quarter ended December 51 ............. Debentures to be redeemed through sinking fund opera- tions (Note 4) ............ Total current liabilities ..... Debentures (Note 4) ........... STOCKHOLDERS' EQUITY Capital stock {Note 5): Preferred, six per cent cumulative, par value $100 per share ............. Common, par value $25 per share ...... Excess of net proceeds from capital stocks issued over par values ............. Retained earnings (Note 2/ ......... Total ........... io6o $ 56,000,000 4,410,546 53,817,206 15,760,433 791,746 9,624,000 140,403,931 150,653p000 291,056,931 52,783,100 162,813,050 44,964,426 260,560,576 254,908,381 515,468,957 $806,525,888 ID68 $66,000,000 50,655,309 15,211,365 791,746 10,521,000 143,179,420 165,402,000 308,581,420 52,783,100 162,813,050 44,964,426 260,560,576 227,389,707 487,950,283 $796,531,705 MNAT 00028964 PAGE SEYENTEE~

PROTECTED BY MINNESOTA TOBACCO LITIGATION PROTECTIVEQRDER iNotes Accompanying Financial Statements The accompanying consolidated financial ~tatements include all wholly-o~ned subMdiariea. The Company acquired the minority interest in Golden Belt Manufacturing Company in January, 1959. Accordingly, this subsidiary, not previously consolidated, is included for 1950, and the financial statements for 1958 have been adjusted In reflect this acquisition as of January 1, 1958. 2. Under the provisions of the indenture relating to the Twenty Year 3% Debentures, due January 1, 1968, cash dividends declal"ed on common stock and payments made in purchasing shares of any cla~ of the Company's ~tock subsequent to December 31, 1947, may not exceed the aggregate of $15,000,000 and consolidated net income earned subsequent to December 81, 1947, less dividends paid on preferred stock, At December 31, 1959. approximately $220.600.000 of retained earnings was free of this restriction. The net tangible assets applicable to the investment in and advances to an unconsolidated subsid- iary at December 31, 1059 and 1958, amounted to $10,069,546 and $11,548.284, respectively. Interest received from this subsidiary ~.'as: 1959, $254.1601 1958. $305,966; the equity in earning6 amounted to: 1959, $658,958; 1958, $077,163. 4. Debentures Dutstanding at December 31, 1059, comprise: 5, 6~ 7. Principal Amounts Redeemable Redeemable After Within One Year* Dec, 31,1969 Twenty year 3ff¢, due April 15. 1962 ...... $3,074,000 $ 81,048,000 Twenty year 3%, due January 1, 1968 ..... 3,fi00,fi00 39,000,000 Twenty-five year 3~, due October 15, 1909 .... 2,160,000 " 43,372,000 Twenty-five ),ear 3~:~, due February 1, 1977 . . 1,390.000 37,238,000 $9.624,000 $1 fi0.653,000 *Estimated principal amounts to be redeemed through sinking fund operati~n~ at prices as provided by the indentuTe$. Capital stock at December 31, 1959, comprises: Shares Sharel Authorized Issued Preferred ....... 540.1fi6 527,881 Common ........ 10,000.000 6.519,529 The stockholders will be asked to vote a'~ the 1060 annual meetlng on a proposal to change each share of common ~tock of the par value of $25.00 per share into two shares of common stock of the pat" value of 312.50 per share. This would increase the common "Shares Authorized" to 20,000.000 and "Shares Issued" to 13.025.044. A noncon r butory Retirement Plan providing unfunded (pay-as-you-go) benefits for empnyees has been in effect since J~nuary 1, 1049. Unde" the P an he Compan'*. ha.~ he , ght to amend. rood fy or erminate the Plan in whole or in part at any time. Payments made under the Plan and charged to income amounted to $1.128,823 in 1950 and SL0fi7,074 in 1958. Substantially larger annual expenditures will be required if the proposed revisions referred to in Note 7 are adopted. The stockholders will be asked to vote at the 1960 annual meeting on revisions of the Company's Retirement Plan includlng a provision for funding, a deferred Profit-Sharing Plan extending benefits to regular ful]-~ime empb~yees of the Compan~ and des gna ed ~ ibsidiarles as well as an amendment of the Incentive Compensation Plan under Article xn of the By-Laws, as set forth in the Proxy Statement. to become effective in 1060. p~*nF EIGHTEEN MNAT (~028965

PROTECTED BY MINNESOTA TOBACCO LITIGATION PROTECTIJ/E ORDER SUPPLEMENTARY FINANCIAL INFORMATION IiIVelll oi'ies Leaf tobacco ................. Manufactured stock ............. Supplies .................. Revenue stamps ................ TOTAL ................. Dece.'aberJ1 1959 1958 $5~6.605,133 $578,305.788 51.065,978 49,517.829 19,009.023 18,829.248 -- 1,658,051 $656.680,134 $648,810,916 ]nventcries used in the computation of cost of sales are priced at costs xvhieh result from the avera gill~ monthly Of transaetiol~s reflected in the ilwenLory accounts except that revenue st~mp inventorie~ were priced at actual ee~t. In 1959 the TreaSlll'y Department instituted the return system for paymeIlt cf exei~o taxes On ci[rarette~ ~l~d tobacco. This method ol tax ]~a~'mellt elimil~ated the t~se of revellue sta/~p$. Land. Buildings. ,Machinery, ctc. GROSS Land and buildings .......... $ 53,708.587 Machinery and equipment ........ 50,135,283 Office furniture and equipment ..... 3,211,647 Automobile~ and trucks ........ 4,0S0,698 Construction in process ........ 2,484,946 TOTAL ............ $128.621.J 61 .Decembcr$I,1959 ALLOWANCE FOR DEPRECIATION $27,480,959 24,426,250 1,993,073 1,944,454 $55.~44,776 NET $26,227,598 35,709,033 1,218,574 2,136,234 2,484,046 $67,776,385 MNAT 00028966 pAGF ~I~ETEEN

PROTECTED BY MINNESOTA TOBACCO LITIGATION PROTECTIVE ORDER 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, 1959 and 1%8 and the re]ated consolidated statements of income and retained earnings for the years theI1 elld~d OI/r examinations were ms*de in aeeordaoee with genera]ly accepted audiLitlg" ~IrilqdP.rds, and accordingly included ~uch tests of the aecoonting records of the compatlies and such other auditing pPoeedtlres 88 we considered lleceSS~ly il~ the circu filsts.nces. In our opinion, the accompaslyillg balance sheets and related litaterlae~Ls of income and retained earnings present fairly the consolidated financnd position of The American Tobacco Company and its wholly-owned subsidiaries ~s of December 31, 1959 and 1958, and the con- solidated results of their operations for the years then ende(I, in conformity with generally accepted accounting principles ~pplied on a consistent bRsis, LYBRAND, ROSS BROS. & MONTGOMERY New York, February 2, 1960. p&CETWENTY MNAT 00028967

PROTECTED BY MINNESOTA TOBACCO LITIGATION PROTECTIVE ORDER DIRECTORS OFFICERS ORPHEUS D. EAXALYS ALFRED F. BOWDEN THOMAS P. CONNORS JOH N A. CROWE A. GORDON FINDLAY C H ARLE~ GANSHOW JoG ~ G. HAGER, JR. ~*'IRGIL D. HAGER PAUL 1M. HAn~ HIRAM R. HANMER HARRY L. HILYARD A. LEROY JANSON FERDINAND ~ ALLGP~AF JOHN B. SPARROW SILAS E. STR[CKLA ND GEORGE L. TURNER ROBERT B. "~VALKER GEORGE A. ~,~'ILKI NS0 N XVILLIAM E. YOUNG PAUL -~'~. HAHN, President JOHN A. CROWE, Senior Vice President ALFRED F. BOWDEN, V{ee President VIRGIL D. HAGER, Vice President HAPRy L. HILYARD, ~'icePreside~tc~nd T~-eosurer A. LEROY JANSON, Vice President ond Comptroller ROBERT 1~. ~'ALI~ER, I "ice Preslde~t CHARLES GANSHOW, Depl~ly Corn ptroIler J. WESLEY DALE, Auditor JOHN W. HANLON, Secretory WALTER A. KENNEDY, Assistant Auditor FREDERICK W. KENNY, Asslsta~t Secretary JOS~:PH R. ~'ATERHOUSE, Asslstant Treas~re~ FRANCIS X. WHELAN, Assistont T~'ef~urer Executive Office 150 East 42nd Stree% New York 17, N. Y. Colporale Offitee 117 Main Street, F]emington, N, J. Transfer Agent Mortran Guaranty Trust Company af New York. New York 15, N. Y. Registrar First National City Trust Company, New York 15, N. Y. MNAT 00028~ p&{;E =X~'~Ty*ON E

PROTECTED BY MINNESOTA TOBACCO LITIGATION PROTECTIVE ORDEa TEN-YEAR FINA+NCIAL REVIEW I-~ THOUSANDS (EXCEPT PER SHARE AMOUNTS) yIAN IOBO Ig61 ID6Z Ig53 Ig64 IDat IgE6(I I IglT(I) 195all I tgSQ(I) DICIMBER 31 10BO IgBI 19B2 1953 1994 ID6B |gB6{I] Ig~711] 1958{I) 1DIg[ll NET SATES $ 871,621 942,552 1,065,738 1,088,380 1,068379 1,090,845 1,091,206 1,098,095 1,105,176 1,161,377 IN%'|NTORIE$ $532,679 594,544 640,753 651,044 632,143 658,241 655,116 671,381 648,311 656.680 (NCOM| |~O|| TAXES $ 76,725 80,411 78,352 99,232 91,056 113,061 111,352 118,605 124,994 136,071 CURm|NT ASSETS $593,026 668,234 712,654 725,577 703,086 727,648 724,423 740,483 717,268 728,028 TAXES ON IN~DME $34,992 47.301 44,283 58,008 48,005 61,399 59,663 61,510 66,138 72,823 WOIKING CAPITAL $459,653 456,056 551.255 548,305 550,454 555,856 566,581 569.345 574,089 587,824 NIT INCOMi AVAILABLE PER &MOUNT COMMON SH&R~ $41,733 $7.17(=1 33,110 5.57~.1 34,069 4.79[bl 41,226 5.90t~ 43,051 6.12(=1 51,662 7.45~ 51,689 7.451cl 57,095 8.28((~ 58,856 8.55==3 63,248 8.23[=1 PANT AND EOUIPMENT INET) $43,747 44,248 44,480 Q 46,571 47,189 49,058 52,216 58,154 64,895 87,778 pACE TWE~T3"-TWO NOTES: (1) Includes all wholry-owned subsidiaries. (2] Based on shares as follows: (a) 5,378A25; {bl EA54.| 10; 1¢) 6.512,522. (3} After deducting "Brands, trBde-markS, patents, SOO~ will, etc." (4) Comprises notes payable to banks and to others, bank Iolt~ LaPj~LI bjL Br it i ih ~ll;¢J dillPj and funded debt redeemabte within one year. MNAT(]UfJ~lO~U~RJ~'

PROTECTED BY MINNESO FA TOBACCO LITIGATION PROTECTIVE ORDER AND ]T~ C@NSOLII)A'I"F~ SUBI~[DIARI~ DIVIDLNDS COMMON PNBPI[RNEO AMOUNT $21,514 21,514 23,934 25,816 28,654 028,655 32,563 32,563 32,563 32,563 pER SH&IE $4.00 4.00 4.00 4.00 4.40 4.40 5.00 5.00 5.00 5,OO t$6 PSI SKA|EI $3,162 3,162 3,162 3,162 3,167 3,167 3,167 3,167 3,167 3,167 TOTAL ASSEI513) $657,405 734,480 O783,154 798,970 775,364 801,725 794,404 815,207 796,532 806,526 UiBT ~NDED SHORT YEEM (41 $215.653 $ 83,722 205,430 149,456 243,570 102,950 231,266 105,107 218,967 91,575 206,328 101,387 193,188 91,665 179,330 104,785 165,402 76,521 150,653 70,035 RETAINED IBJtNINGS $17,057 8,434 6,973 12,248 11,230 19,840 15,959 21,365 23,126 27,616 NET WOITH 13} $307,392 315,826 377,074 390,832 403,765 423,605 443,374 464,739 487,950 515,468 SINXINO FUND IB~UII|M|NIS $ 9,942 10,154 10,377 11,989 12,261 12,532 12,839 13,144 13,468 13,800 gOOK VALUE PER COMMON 5NAR| 13] $47.35 48.92 50.26 51.83 53.89 56.94 59.98 63.26 66~2 71.05 yEAR IIMSO ililll 1DIS2 Im63 ibm4 IgSS ig60ql) 106711) 104S1~1) liBl( i ~ DmCgMIIBR :11 18S0 IOISt 186Se $gl6~ 1D6~k 1BBIS IOISe(1) Ig6?tll $86011) l~lSl( I I MNAT 000289"/0 p~I TW~Y~TY.'I'HREK

PROTECTED BY MINNESOTA TOBACCO LITIGATION PROTECTIVE ORDER YOUR COMPANY'S PRINCIPAL PRODUCTS which make your dividends possible ClG&RETnrms PALL MALL --"Outstanding . . . and the)" are mild!"--the nation's King. PALL ~'~ALL'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! LUCK," STIIIKE A blend of the finest Turkish and domestic tobaccos. The Lvcxv flTRIKE process "It's Toasted" enhances the taste of these fine tobaccos. A leader among standard size brands DUAt FILTER TAIgEI'TON- "Filters as no single filter can . . . for mild. full flavor" be- cause it has a !0ure white outer filter plus an exclusive inner filter with Activated Charcoal. It has been definitely proved that Activated Charcoal makes cigarette smoke mi!d and sme~th IIEIIBEIZT TARlZYTON -- Its distinctive flavor and mildness have been famous for more than 40 years. Fall king size with the tip that stays so pleasantly firm and fresh lilT pARADE FILTER TIP Gives high filtration plus free draw and the rich flavor of fll~e tobacco The Company also manufactures SWEET CAPORAL* JOHNNIE "~XI~R~ O~IAR. ~ATURAL and LORD SALISBURY cigarettes A new brand in the filter menthol field, airieR&, is being tested in a sman YtuDlber of selected mEtrkets. ClG&RII. ROI-TAN --largest selling 10~ cigar in America. Also R01TAN Cigarillos and Trumps at 5¢ and Golfers at 4e. "ROl TAN has more of everything" than any cigar at its price ANTONIO ¥ CLEOPATRA--the ~nfldes~ clear }/ax'ana cigar LA COROr~A ~ -- "Supreme the World O~er" IlocK y CA * the original panetela, created in Havana in 1888 • ,,international Brands." among which ate Ln CORONA, BOCK y CA and HEnRy CLAy, are manufactured by subsidiaries of the Company, in Cuba and in the United States. CaBAl, AS -- These x~orld-famous cigars are made in Cuba and exported to the United States by a subsidiary of the Company The Cotllpany also manufactures CHANCELI~DR, a high-grade domestic cigar. SMOI~INO 3rOISACCOIL HALF A~D I/ALF--the Company's leading granulated plug cut, Barley and Bright. Being made available in pouch-in-box packing for double protection, longer-lasting fl'eshness Bt[E BOAR American Tobacco's leader among high-grade pipe tobacco blends GEN IJlNE ~BI" LL*' Dt'RHAbl -- stifl far and away the No, 1 "roll-your-own" tobacco Aalo~ the Comp~ny'~ other high ~'rade sm~klng n~ixtures are CABL~rON CLUe. I-IERaER'r TARgy*~oN antl SERGNE. Other popular-priced brands include CO~eASS. CUT~ p;l'l:, Ftvz BI:OS.. HO~ZS~ LO~CG CUT~ IVANIIO~. PEERLI;~S (ADAMS). LIBERTY* STANDARD ~DAMS). BUCKINGHAM a~d TUXI~O. @ MNAT 00028971

PROTECTED BY MINNESOTA TOBACCO LITIGATION PROTECTIVE ORDER -O