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annual or, FOR THE YEAR ENDED DECEMBER 31, 7952 W]TH CONSOLIDATED BALANCE SHEETS CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS Executive Office 111 FIFTH AVENUE • NEW YORK 3, N. Y.

Ss952 ,9~_= Net income per common share ................. : ................ $4.79 Dividends paid per eonm]on share ............................. 4.00 19s~1 $4.64* 4.00 Net s~les ........................................................ $1,065,73B,454 Income, before taxes on income ....................... 78,351,963 Net income .......................................... 34,G68,963 Dividends pald (preferred and common) ............. 27,@95,973 Portion of ~el income invested in assets used in the h~lsi~es~ and to provide ior debenture sinking fund requirements 6,972,990 Current assets, December 31 .......................... 712,653,905 Current liabilities, December 31 ....................... 161,399,785 Net working capital, December 31 ............... 55L254,120 8'942,552,034 80,397,669 33,109,669 24,675,682 8,433,987 668,233,873 212,177,930 456~055,94,1 Nuraher of stockholders at December 31: Common ................................... 74.792 66,693 Preferred ................................. 8,166 8,324 * Ba~ed upon 6~454,110 v.hares outstanding al December 2;1, 1952. Baaed upon 5,~78,425 shares which wore outstanding ~t December 31, 1951, ~he amount wa~ $5.57 per share.

To our STOCKHOLDEII$: This letter, together with the accompany- ing financial ~tatemeots, is your Manage- ment's report on the operations of your Company, incladillg its consolidated sub- sidiarles, in 1952. The financial results for tile year are, of course, of paramouut interett to the stockholders. Some o1 the more important facts relating to 1952 opera- tions are set forth below: 1. Dollar and unit sales reached a new high and were again the largest in" the industry. Dollar sales totaled $1,065,738,454. 2. Net income f,,r the year increased to $34,068,963. 3. The sale in March 1952 of addltlonal common stock and debentures has materially strengthened your Com- pany's financial position. SALES Dollar volume in 1952 increased $123,186,420 to $i,065,738,454. About 59 per cent of the gain was due to higher unit sales of elgarettes and the remainder to the rise ht the Federal excise tax that became effective November l, 1951. Sales of the Company in 1952 increased at a rate substantially h~gher than that for the industlT as a whole. February 5, 1953 Between 19,tO and 1952 inclusive, the dollar sales volume of The American To- bacco C.mpany increased by 245 per eel,t, compared with an increase of 185 per cent in the combined dollar sales volume of the four other principal tobacco companies. This is illustrated in the following chart, in wblch 1940 salem volume fo," tl,e Com- pany and /or the four other pHncipaI tobacco companies is indexed at 100. Growth in Dollar Sales Since 1940 0940=100) ~ IM A~ ToMe:o ~r~ m Four Major Com~fitors 1940 '41 '42 '43 '44 '4~ '46 '47 '48 '49 '50 '51 '52 Tf~e Ctmlpany's ttnit sales of cigarettes in 1952 were the largest in the industry and in the Company's history. Ahlmugh LUCKY STRIKE total domestic ~ales showed a decline for the year, there are

encouraging indications dmt in potentially important groups of consumers LUCKY SIRIKE has achieved sales leadership. One o£ sltch groups is the United States Armed Forces, ~*here reports indicate that lUCKY STRIKE is the favotile brand. Also, a recent nation-wide sur~ey based on actual interviews at eighty leading col- leges indicates that cellege students prefer LUCKY STRIKE by a wide margin and that LUCKY STRIKE, during the college year September 1951 f~ ]line 1952, gained more smokers than the nation's two other principal brands combined. Sales of our two king-size cigarettes PALL MALL and HERBERT TAREYTON, increased substantially in 1952. PALL MALL is the largest-selling klng-size cig- arette in America and has advanced to fourth place among all cigarette brands. Sales of LA CORONA and ANTONIO y CLEOPATPu~, leaders in the field of high* grade cigars, were higher in I952 than in the previous year. ROI-TAN eontinued to be the large~t-selling eigar in its price class. Sales of the Company's smoking tobacco brands, wtdeh constitute a relatively minor portion of tot,d sales, decreased at about fl~e same rate as that re*" d~e industry as a whole. EAIII~INGs AND TAXES Consolidated net income for 1952 amounted to $84,068,963 and was $959, 294 higher than fog 1951_ .Income before taxes was less than for the previous year, but fieeause of lower excess p¢ofits and income tax liability, ]let ineemu increased. The lower tax liability was due principally to greater excess profits tax credit whb:h resulted ~'rom the ~ale in OI ¢ i i I I I t 19,10 '41 '42 '43 '44 '15 '46 '47 '4~ '49 '50 '51 '52 March 1952 of additional common stock and debentures. Taxes on income in 1952 were equivalent to $(;.86 per common share compared with earnngs o+' $1.79 per share after taxes. DIYI:DENDS During 1952 dividends of $4.00 per sbare were 1told on the common stock, eort- sistlng of fmu" regular quarterly dividends of 75 cents each and art extra dividend of $i.00. A dividend of S1.75 per share, consisting of the regular dividend of 75 cents and an extra dividend of $1.00, will be r~ ailed to stockhoblers on March 2, 1953. 'I'ihe March 2 dividend is the 190th con- secutive dividend paid mt the common stock siru:e the incorporation of the Company in 1904. While the amount of the dividends paid on common stock during these years hats ~,aried because of wa'iations in earnings, dividends on the preierred and tttmltnon stocks have been paid every year since tim incorporation of the Company. This is a~l ou stand ng record and one ha S espee a y

important to stockholders who depend upon the regularity o£ their investment income, CIGARETTE PRICES At this time last year your Management reported that it was making every effort to obtain permission from the Office of Price Stabilization to raise the price of eigarottcs. 0a April 15, 1952, the Office of Price Stabilization informed the cigarette indus- try iliab based on its survey of cost and earnings in the industlT, no change in ceilings would be made at that time. 011 September 15, 1952, the Company re- quested the 0IEce ol Price Stabilization to reconsider clgarette ceiling prices. Supple- mental data was furnished to the Of~ce of Price Stabilization in connection with this request. On January 7, 1950, the Company was informed that the committee which had been appointed to review this request had~ reeomrnended disapproval of a price in- CreaSe. Slight relief from the eust-prbe ~lUeeze was obtained in August when cigar prices were decontrolled. However, slnee cigar sales represent only a very small pordon of our total sales, the relief afforded hy the rise in cigar prices is insignificant. As a consequence, your Company had to absorb the continuing higher costs of Maf tobacco, packaging materials, wages and other items without being able to recover any appreciable portion of such additional costs through increases in the prices of its products. Thus, notwithstanding substantially larg- er sales volume,--higher by $123,000,000 than in 1951, income before taxes was less in 1952 than Jn the previous year. If it had not been for diminished excess profits and income tax liability for 1952, net in- come for 1952 would have been lower than for i951. The expected expiration or terminaSon of cigarette price controls gives hope for the future. INVENTORIES As has been true fnr a number of years pasb the Company's inventories of leaf tobacco, manutactnred stock, operating supplies, etc., again increased in 1952. The amount of the increase was approxi- mately $46,000,000. Most of this was thte t~J tim larger physical quantities of leaf tobacco which are necessary to maintain adequate supplies of properly aged leaf consistent with the growth of the Company's business. Although drought eondi8ons, which were generally prevalent throughout the tobacco- g~owing areas this summe~, adversely af- fected the 1952 tobacco crops, your Com- pany was able to foresee this condition in time to make pre~season purchases of prior yoars' tobacco, thus obtaining an adequate quantity of top quality cigarettte tobacco commensurate with its production rcquire- inent~. During the period from 1940 to 1952, the Company's sales expanded from $309,325,885 to $1,065,738,454 while inventories rose from $159,428,115 to $640,753,119. The increase in the value of irlvcntories during this period was due to the larger physical quantities of leaf tobacco needed and to higher prices re- quired to be paid tor our leaf purchases. The growth in the Company's volume of sales over the years, together with the larger quantities of tobacco required in the pro-

771e ~n~can Tdmcco Compauy Growth in [uve~#ories and Sales 1940 '41 '42 '~ '44 '45 '46 '47 '48 '49 '50 '5I '52 duction of FALL MALL and HERBERT TAREYTON king-sizo cigarettes, has oc- casloned the increase in the physical quan- tity of our leaf tobacco inventories. Since 1933, except for the year 1939, the Federal Government has exercised a degree of restrictive control over the pro- duetlon of flue-em'ed and hurley tobacco crops. Marketing quotns have been in eiiect for flue~eured and bttrley tobaccos, az~d Congress has provided mandatory price support for tobaee~ wheoevcr m~rketit/g quotas are Jn effect..Largely as a conse- quence of this program, the prices paid by the Company during the past season for flue-cured and bttrley tobaccos, which are the principal cigarette types of leaf tobacco, weze more than two and ~ne-half times as higit as they were ia 2940. Funds for the larger investment in leaf tobacco inventories have been provided seasonally through short-term loans from banks. However, at periodic inter~als since 1940, the Company has funded a total of $325,000,000 of short.term debts and has obtained approximately $I0%,000~000 from the sale ot! additio~ral common stock to its stockholders. In March t952theCompany sold approx- imately $54,000,000 of common stock and sg0,000,000 of debentures, the proceeds o~ which were used to retire an equivalent amount of bank loans, which had amounted to $140,(EO,000 on Decernb,er 31, 1951, and had reaohed a peak of $162,000,000 in January 1952. Your Management takes pleasure in re- porting that of the 1,075,6~15 shares of common stock oKered to the common stock- holders at $52 per share in March 1952, 1,047,864 shares (or 97.4 per cent) were suhscrlbed for through the exercise of rights. The remaining 27,821 shares were purchased by the underwriters. Bank loans at December 31, 1952, amounted 1o $92,000,000, a decrease of $48p000,000 front the end oJf I951. During the year, fmlded debt prevthusl3' issued was reduced $10,366,000 through the operation of sinking funds. Your Mat~agement is of the oplnthu that working capital at the present time is ade- quate for tbe needs of the foreseeable future, and in the absence of unusual developments doe~ not contemplate any new financing. THE COMP~N'Y~S POSITION IN TI~E IN/)(JSTHy Each stockholder of The American To. haceo Company has the advantage of having a major slake in virtuaBy the entire field of tobacco products. Your Company is in the

exceptionally strong position of having three out of the seven most popular cigarette brands--LUCKY STRIKE, PALL MALL and HERBERT TAREYTON; three great cigar brands--LA CORONA, ANTONIO y CLEOPATRA and ROI-TAN; and two popular smoking tobacco brands--HALF & HALF and BULL DURHAM. Thus, each stockholder has an interest in a group of broods, whlch represents the best diversi- fication of sales in the industry. In addition to its prominent position in the standard-~ize cigarette field, which is maintained by the Company's largest hrand, LUCKY STRIKE, your Company is well established in the klng-size field with PALL MALL and HERBERT TAREYTON. ADVERTISING Your Company's products are sold in a highly eompetiBve market and the main- ,, tenance of the leading position o£ the Company's brands requires extensive adver- tising and promotion. Sales of file Com- pany's principal eiga~elte brand& LUCKY STRIKE, pALL MALL and HERBERT TAREYTON, are promoted extellslvely through televislon~ radio, magazine, news- paper and billboard advertising. Advertising is a principal factor in achieving the great volume of cigarette sales, without which the cost of manufac- turing cigarettes and their price to the con- sumer would necessarily be ruuch higher than they are today. Considerable misin- formaBon exists as to the cost of cigarette advertising. In spite of its comprehensive nattrre, your Company s c'gare e adver s- ing costs only about one-third of a cent per package of twenty eigarenes. Throughout all our advertising runs the tnaiu theme of quality, which is the most importallt factor in the popularity of LUCKY STRIKE, PALL MALL ned HERBERT TAREYTON Cigarettes. The use of quality leaf tobacco and die careful methods employed in the manufacture of our cigarette brands are eonstandy empha- sized in our advertising. During 1952, LUCKY STRIKE televi- sion and radio programs and personalities continued to receive recognition through some twenty-five different local and national awards for excellence of performance. "Your Hit Parade", herb in televisJo~ al)d radio, took top honors th the musleaI field; "Robert Montgomery Presents" was voted the best television dramatic serie% and "The Jack Betray Program" was again named the outstanding comedy show and Mr. Benny the best comedian. EMPLOYEE RELATIONS As of the end of the year the Company and its subsidiaries had approximately 19,000 reguIar fuR-tlme employees in the United States. The relafionsbJp between the Company and its employees has been satisfactory. All regular fulbtime employees in tbe United States are covered by a retirement plan and are provided wifil group life insur- ance coverage. In addition, medical attd hospital benefits are provided, as well as sick leave pay. On behalf of the Board of Directors, I should like Io expless our appreciation for the continued active intere*t of tlw ~tock- holders in the affairs 0£ o~sc Ccmq)any mtd for the cooperation of our employees and elxs~Olners. PAUL M. H~.llrt President 7

1952 OPERATIONS AT A GLANCE THE COMPANY RECEIVED FOR GOODS IT SOLD AND FROM DIVIDENDS, INTEREST AND M]SCELLANEOUS $1,067,211,000 THIS IS HOW IT WAS USED OR 54% FOR REVENUE 5TAMPS AND TAXES 27% FOR TOBACCO (incJudlng applicabEe expenses) SET ASIDE: $575,089,000 $287,852,000 15% FO~ WAGES, GOODS, SERVICES, ETC. 1% FOR BOND AND BANK INTEREST $160,302,000 $9,899,000 1/~% FOR EARNINGS RETAINED TO MEET FUTURE NEEDS $27,096,000 $6,973,000

{ ~/.)t< i ~t'~,'~J~j ~'t~///C r~E,~ ~ subsidlarie~ except The Amerlean For years ended December 31 Toba¢c° Company of ~ Orient, Ine' 19~2 l%~T SALES .............................. $1,065,738,454 Cost of sales, selling, general and administrative expenses OPEBATING PROFIT .......................... OI]]er income .............. , ........................... 1951 $942,552,034 978,021,712 8.53,438,725 87,716,742 89,113,309 1,472,029 860,124 89,188,771 89,973,4~33 Interest and related charges ...................... 9,899,263 8,957,832 Other deductions from income .................................... 937,545 617,932 Total deductions ................... 10,836,808 9,575.764 Income, before taxes on income ................................ 78,351,963 80,397,669 Federal and other taxes on income (Note 1) ................ 44,283,000 47,288,000 NET INCOME ................................................... 34,068,963 33,109,669 Retained earnings, beginning of year ............................. 112,754,074 104,320,087 ] 4~5,823,037 137,429,756 Cash dividends: Common stock, $4 pel" share .................................. 23,933,991 21,513,700 Preferred stock, $6 per share .............................. 3,161,982 3,16],982 Total dividends ...................... 27,095,973 - 24,673,682 Retained earnings, end of year (Note 2) $119,727,064 $112,754,074 Depreeialioh pravided and charged Io costs and expenses amounted to $3,I00,517 in 1952 and g2,996,883 in 1951. 9