Tobacco Documents Online

/

ANNUAL REPORT THE AMERICAN TOBACCO COMPANY FOB. THE YEAR ENDED DECEMBER 31, 1946 T WITH CONSOLIDATED BALANCE $~F, ETS AND CONSOLIDATED ............ ~ ............. STATEMXNTS OF INCOME AND $URJ?LU$ Exee=tlve OHce 111 FIFTH AVENUE, NEW YORK 3, N. Y.

ORI*HEtd$ D. BAXALY$ RXCH~D 3. BOyI~N T~O~tA$ P. Co.Nora+ Jt,+MES R, COO~ JOHN A. C~OWE Jom~ S. Do~ DIRFCTOg.S F~s'ro~ L, FowLm~ HfR^~.f R. HANME~, ~D~U~n A. H~x~vev GEO~,CE W. HILL. ~'t~. HA~,~" L. HILyA~ JAMES E. LrFsco~t~, JR. WILLIAM H. OOSnL~T F~O B. RE*dT~ J~x~ F. SX~ICKL~I~ OFFICP~R~ VIN~NT RIGGIO .............................................................................. Presldca¢ RICHARD J. BoXlmu ............................................................................. ¥1ee Pre~den~ J^~a~s R, Coo~ .................................................................................. Vice President pRESTON L, FOWLEX ......................................... Vice Presldcnt pAUL ~f. HA:IN ............................................................... Vice Pr*sldent G~o~GX ~r Hna,~ JR ............................................... Vice Pr*sidcnt EDM~D A. HARVEY ...................................................... Treasurer tff~P, xy L. tfflLy~,D ......................................................... A~slst~ac Treasurer F~ ~. R~vr~ ................................ Auditor; Assistanz Treasurer EDWARD ~). FLAHERTY ..................................... A~is~an~ Auditor ~. LERoy J~.~rsou ............................................. Asslscant ~udir.or FR~DEalCK ~. KENN¥ ................................................ As$~l~nt Secrct~ry EXECUTIVE OFFICE Ill Fi~tt~x Avenue, ~New York 3, N. Y. CORPORATE OFFICE I17 M~in Street. Elemlngton, N. J. TRA~NSFER AGENT Guaranty Tnas~ Company o/" New Yor~ New York 1L N. Y. REGISTRAR City Bank Farmers Tru~c Company New York 15, N. Y.

To the Stocktaolders o[ THE A/~a'~dcA~ TOBACCO COMPA~Vy: The Treasurer respectfully submir~ the consolidated statement o~ income and surplus for the year 1946, the consollda=¢d bahnce ~heer of your Company as of December 3I, 1946, and the report of Lybrand, Koss Bros. & Niontgomery, .......... E: A. Hagv~,, Tre~r~-e~ ...................... FI-emlngton, N. J., March I, 1947

THE AMERICAN TOBACCO COMPANY NOTIC~E OF MEETING Flemln~ou, N. J. March 1, 1947 Notice is hereby given that the Kunual Me~ting of the Preferred and Commo~ Stockholders of The Ameridau Tobacco Company will he held at No. 43 Park Avenue, Flemingion, N. J., at two o'clock in the afternoon, Eastern Standard Time, on W~lne~day, April 2, 1947, for tee following purpomm: (i) to elect directors; (2) to vote upon a proposal (de~ted Proposal A) that, on any o~ering of presently authorized shares of Common Stock B for subserlptinn to holders of Common Stock and Common Stock B, the Board of Directors of tee Company he autholized, to time extent not precluded by statute, in their discretion to determine, within ten days prior to the making of sush offering, the price at which such shares shall be offered to stockholder& provided that the price so determined shaU be ~ot less than 10~'o nor more than 30~ below the market price of then outstanding share~ of Common Stock B on the date of such determination; (g) in tim ewmt that, prior to the final adjourmaent of the mc~th,g, the Board of Directors shall have determined a ~riee at which shares of Common Stock B shall be off.red for subscrip- tion to hoIdem of Common Stock and Comttmon Stock ll~ then to vote upun a proposal (desig- nated Prope~al B) that the price a~ so determined be ratified and approved, without derogation of the authority conferred upon the Board of Directors (J| such authority shall have been con. letted in accordance with the proposal refea'red to in the preceding item) to determine such price; ~d (4) to b'mms~ct such other hualn~ ~ may properly come fiefoze the meeting. The Preferred and Common Stook transfer books will not dose, but hddem thereof tn be en- tltied to vote must he holders of record at the close of buslnesB on Marsh 3, 1947. JO~N W. H&~LON, Secr~ary PROXY STATEMENT The emdosed Proxy is solicited by and on behalf of the Management and is revocable. The outstanding number of eack das~ of voting securities of the Compmly is: Preferred 526,997 shares; Common 1,515,983 shares. The Prefix-red Stock is e~atllhd to four votes p~r shere. The Common Stack is entitled to one vote per share. ELECTION OF DIRECTORS The Board of Directors eonsisl~ of seventeen members who are elected to hold ofl~ee tmtil the ~ next Annual Meeting or until their suceessors are duly elected and qualified. It is the intention of • the Proxy Commlttee to vote at this Annual Meeting for the following nominee~, who together consti- "- . tat* the present Board, and who have served as dlrectozs of the Company ~iuce the yeax~ ~tated after their r~peetivo names:

2TM Nmmo Orpheus D. Bazaly* Richard J. Bay]~ T]~omas P. Comlors James R. Coon John A. Crowe John S. Dowd Preston L. Fowler Paul M. Hahn Hiram R. Hanmer Edmond A. Harvey George W. Hill. Jr. Harry L. Hilyard James E. Lipscomb, Jr. William H. Ogshnry Fred B. Renter Vincent Riggio James F. Stricldand year Fi~t Priacipal OV:ul~tioa Elected Di~ct~r Vice Preaidenb The American Tobacco Company 1940 of the Orient, Inc. Vice Pres~de~nh The American Tobacco Company 1929 Director of Tra~, The American Tobacco Company 1946 Vice President. T~ American Tobacco Company 1936 A~istant Chief of anufactuxe, The American Tobacco Comply I931 Vice Presid~at, American Suppllers, Incorporated 1946 VICe President, The ~a~risan Tobacco Company l~l Vice President, The American Tobacco Company1931 Director of Research, The American Tobacco Company 1938 Treasurer, The American Tobacco Company 1932 Vice President, The American Tobacco Company 1936 Assistant Tre.~sarer, The American Tobacco Company 1914 president, Am~xican Suppliers, Incorporatad1918 A~sistant Chief of Manufacture, The American Tobacco 1930 Company Auditor, The American Tchaczo Company 1931 President, The American Tobacco Company 1927 Vice President, American Suppliers, Ia¢orporatad t946 Three of the nominees n~Lmed above. Thomas P. Connors, John S. Dowd aad James F. Striek- laud, wer¢ elected dlre~tors during the year 1946 by the Board of Directors to fili the vacsncic* that occurred through the death of C. Huntley Gihson, Patrick H. Gorman and George W. Hill. Thomas P. Connors has been head of the Tra~ Department of the Company since February 10, 19~,4 and for a numb~ of years prior thereto was Assistant Director of that Department- John S. Dowd and Jamc~Y. St~icAlaad~far approximately the last fafte~a years have heett Vice Presidents of American $applicaz, Incorporated, a subsidiary of the Company, their activities in that capacity having relatad priaripany to the put,hose of leaf tobacco. Of the outstanding securities of the Company at the close of business on February 15, 1947, the Company is informed that these nominees were direeRy or indise~tly the benefidal owners of ~curlti~ as follows: Name Common O~eus D. Baxal~ 540 Richard J. Boylau 151 ~ Thomas P. Cotmors 100 James R. Coon 460 John A. Crawe John 5. Dowd 200 Prestou L. Fowler 300 Panl M. Hahn 1405 Hiram I~ Hanmer I00 Edmund A. Harvey George ~ Hill J~ 4 Harry L. Hilyard I00 Jar~m E. Lipseomb, Jr. 1200 Wi~am H. Ogsbur~ Fred B. Reute~ 21 Vincent Rig~o 3745 James F. Strickhnd Infomdiiot regarding the remuneration ~LRt~t tt!attratlon~*, Common B Pr~ fer~t 130 32 20 50 187 5 140 40 1700 203 300 I00 100 30 160 4O 220 of ~rectors is hereic~ter set forth under the cspfi~

PROPOSED ISSUANCE AND SAI~ OF COMMON STOCK B The ~on?ulldat~d net sales of $764~167,590 reported by the Company for tl~ year 1946 were the hrge~ in its hi.coy, ex~ee~ng by {206,610j085 the related figures of $557,557,505 for 1945, and contrasting with consolidated net sales of $363,558,664 for 1941. While tho larger part of the $206,fi10,085 increase repo~ted for 19~di over 1945 is due to greater unit volume of salos and Jome- ~ what higher average prices, approximately 28% ~of 1110 increase is due to the change of n portion of total sal~ from a tax-free hasls ~mesUy sells t~ the Armed Sea'~isez/ to dome~ti~ zalc* e~r~ylng she Internal Revenue tax. At December 31. 1946 the consolidated invenlories, of which l~af tchaoeo is the chief Item, amounted to ~A)7,013,548 and funded debt and bank loans aggregated $d68,074,250; this eompar~ with consolidated inventories of $202,222,316 and funded debt and bank loans of $10S.667,900 at December $1, 19~1, and represents an inexea.sn during the interval of $g04,791,232 in inventorie~ and of $16z~,40~,350 in funded debt and bank kings. In 1942 the Company issued ~ud sold $100.000,000 of im deben~res due in 1962, and in 1946 issued and ~old a ha~aex $100.000,030 o~ its dehantares due in 1969. Aher each isaac all then out. standing hank loans were r~ti~d. These issues are subject to cumulative sinking fund~ which reduced the aggregate amomat of both issues outstanding to ~182,243,000 at December 31. 1946. $inen the second deheiature isslz~ addltioua[ t~nds have 'even required in the bnshae~s, and at December S1, 1946 the Company had uu~slandlng blmk laanm aggregating $85.000,000. The amonnt of its hank loans increased to $13g,000.000 at February 15, I947 and some farther in0rease is ex- pected prior to the sez~onal decline in working capital req~firements wl~eb normally occurs during the spring of each year. The need for the funds represented by the b~k borrowings aris~ prinel- paIly through the higher average price of leaf tchacvo and the larger smotmt v~ tohaeeo inventory, both hi cost and quantity, carried by the Coznpany and its subsidiaries, the larger tobacco inven. tory bclng caJ/ed /or by increased s~des. There has also been an increase in the invanto~y ol manu- factured atoeki Additions are being made to plant and equipment, expenditures, for that purpose~ ehie~y for maellm~y~ for the year 1946 hav~g exceeded by ~,200,000 the depreniati09 agowdae~ ~or the y~ u~d ~a~r exptttclliur~m are evntemplate~L Having in mind the greater volume of ~he Company's business, the hierea~ in working capital requlremevls including the larger inventorie~ required for the proper handling of the busLuess, and the consequent need of additional permaneng eapgal~ the Board of Directors ¢o.slders it dealtahle that further equity eapltal be obtained. After consldexatich o[ the subject, sho vaneluaion ha~ bee. reached, subject to m~hat eondliioas, that additional shares of Common Stock B should be issued and sold, and (together with ebare~ of Common Stock B referred to below that have bee~a reaequired and are held in ths Ize~ary) should be offered tor subserlptio, pro rata to the holders of the Chin. mug Stock and Common Stock B. The capital stock (authorized} of the Company presently eonslsts of 540,106 shar~ of the par v~e of $100 ~ash of Prd~rted 5t~eb. t>f ",shleh 526,997 shart~ are ~s~aed mad outstandm_g in the hands of the ptthlio; 2.000,0~0 share~ of the par value of $2~ each of Common Stock, of which 1,609,696 shares have boca issuod, including 93.713 shares reaeqalred and held in the treasury, leavinS 1.515~9gS shares outstanding in the hands of the pu~blie; mad 6.000.000 shares of the par value of $25 eash of Common Slosh B, of whlsh 3,134,217 shares have been ismed, including 168,180 shares r~aequired and held in the treasury, leavlag 2.966,0~7 share| outstanding in the hands of the public. A d~crlption of provilions applicable to the Comanon Sto~k B and to the other classes o~ stock o~ the Company, u stated in the Charter (being the Agee~meat of Merger a~d Con- ~olidation as amended) of the Company, is ~et forth below. PgEFERRgD STO(~ Dividend Right. The holdexs of the Preferred Stock ar0 entitled to receive out of the surplus -~ or out of the net proliL% as and when dscinred by the Beard of Directors, a etu~alative dividend at ~ the rate o~ but never exceeding, six per centum per annum, payable yearly, hal~ yearly or quarterly. b0for~ any dividend shall be set apar~ or paid on the C~m0~ Stc~li or Common Stock D. Vo~.~g R~ts. The holders of the Prefer£ed Stock are e~tifled to four votes for each sham o£ such stock hdd bY them.

L/qzd.dat/on R/g/g*. In case of liquidation, or dissulutlan, or dislribution of assets of the Corn- posy, the holders of Preferred Stock shall be paid the par amount of their Preferred shares and the ~aotmt o~ dlvide~eds accumulated and unpaid before an)' amount shall be payable or paid to the holders of the Common Stock or Common Stock B. . M~seeffan~o~. The Charter doe* not cut oft such preempt ve rights as the holders of the Prc- ferred Stock may have under the law ~ the State of New Jersey. In the oplmon of entresol the holders of preferred Stock have no preemptive rights with respect to shares of Common Stock B. There are an limitations in any indenture or other a~eem~at on the psym~at of dividends. The Preferred Stock has no present subscription or conversion righth and there are no redemption pro- vislana applicable thereto. The outstanding Preferred Stock is fully paid mad non-assessable. COMMON STOCK The only distinction between the Common Stock and Common Stock B provided by the Charter is with r~pect to voting rights. Reference is made to the description of the Common Stock B follow- ing, including the pyrtlon under the sub.heading "Voting Rights". , COMMON STOCK B .] Dividend RiSkts. When all accrued dividends oa the Preferred Stock have been paid, the ,, D rectors (ff in ther jud~nent the surplus or net prosts, after deducting the amount of dividends to accrue on the Pre~ereed Stock during the current 5,ear, shall be SL~eient for ~ush purpose) have 'i power in their disci~don to declare and pay a dividend, or dividends, on the Common Stock and ]i Common Stock B, "me Common Stock and Common Stock B, with respect to cacb share of either , outstanding, have eqaml rights in the matter of dividends. Voting Rights. The holders of the Common Stock arc ¢ashlied to one vote for each share held by them, but the kuldsrs of Common Stock B are entitled by the Charter to no voting rights. L&/u/daaon R/g/d& .In o~se of Iiquldstlon, or dissolution, or distribution of assets of the Corn- ; i puny, after payment to the holders of the Preferred Stock ot the anmm~ts to which they arc entitled I (rulnrenee is made to the information under the sub.heeding "Liquidation Rights" in the foregoing ,! . [ desealplion of the Preferred Stock), the balance of the assets of the Company shall be divided ratably ~' among the holders of the Common Stock and the Common Stock li, share and share alike, without ~i distinction between shares of the Common Stock mid the Common Stock B~ : i Miscellaneous. The Chafer does not cut off such preemptive rights ~s the holders of the Com- mon Stock and Common Stock B may have under the ls~ of the State of New Jersey. In the opinion of counsel the holders of Common Stock and Common Stock B have preemptive rights with respect ~o authorized and unissued shares of Common Stock B. There are no limitations in any indontttre or other agreement on the payment of dividends. The Common Stock and Common Stock B have no pa~mt sublseription or conversion rights, and there are no rede~aptlon provisions applicable thereto. The outstanding Common Stock an,~tioinmon Stock B is fully paid ~ed non.assessabla. PROPOSED SALE OF COMMON STOCK B The Board ed Directors eontmaplate~, subject to the existence of market eondJtions acceptable to them at the llme, that fits Company wdl offer shares of Cunmma Stock B {hieinding shares reac- qthred and held in the ts'easnry) for subscription pro rata to holders of the Common Stock and Com- mma Stock B. Such offering, ff made, will not occttr tmtg after a registration statement under the Securities Act of 1933 shall have become effective, and the oliering would then be made on the basis of the prospectus included as a part of such registration stateanent, by the mailing of subscription war, ants or "rights" togeth0er with a copy of the prospectus to holders of Common Stock and Com- mon Stock B of record on a date ~ot later than the effective date 0i the registration statement. The preparation of the registration statement has already been undertaken, with the expeetullnn that it will beoome eHeetive aud the offering wilt be made shortly a~ter the Annual Me,ling. The psh~ at whisk such Common Stock B may so be offered will be subje~ to determination shortly prior to the effective date of the regislxation statement, mad wig be affected by market 4

conditions at the firm. Daring tim year 1946 the market prtee of the Common Stock B on the New york Stoch Exchange varied between |76.25 and $100.25 I:~ share, and the la*t reported sale on such Exchange on Fch~ary 15, 1947 was at ~79.d25 per share. It is presendy expected that the offering of the additional sharea wiII ho at a price ~Dt tours than twea~tydlv~ nor 1¢~ than twenty per- cent under the market price pre~alling at the time of determination of ttm offering price. The alYer- .~, ing prize, and the rdated proo~ to the Company, will he taken iron aeeouttt in the determination of tke n~alm of tharo~ to be o~ereth Withen~ limiting the dlscretloo of the 9oaed of ])Jreetux~ tthin~tely to determine Mher~se, with respect to the offe£mg of sharm of Common Stock ~ for subscription, it is presently contemplated that: (a) thu altering will he made on the koala of o~e share for each five shares of Common Stock and Common Stock B outstanding at the record da~ for determining stockholders entitled l~ sub- ac~, wbleh wiJ2 reqedr~ appmxlmatdy fi~,400 ~ to be iocinded in the offering; (h) the reoord date for determining hold¢~ of Common Stock and Common Stock B ~fided to subscribe will f~ be the dose of busha~..s o~ or the day prior to, the d~ective date of the registration statement covering the offering of such additional shar~s, which is expected to he April 3, 1947; (c) the mailing of ~ubscrlptlou warrant~ to ouch *toeAholders w/l/ be completed as soon a.s pracCicubIe after the effec- tive date of the reghtzation statement; (d) the sub.edption warrants will expire hy their te~ms at 3:00 o'clock P.M., New York City time, on April gl, 1947; and (e) the offering price, and the number of shares included in the offerln~g or the ratio of sash share~ to outstandiug shares of Common Stuck and Common Stock B, WIn he released for put~/cation at or prior to the time inforamtinn s~ntlng the offering price shall he filed by amendment to the reghtration statement. Stochho]d~s x, fith eddeesses outside of the United States or Canada, who will ~0e entitled ~o sab- sc~e for the additional shares, shoaid provide for the exercise or sale o~ subscription warrants apportalnin$ to shares held by them, hy maifiag arrangements therefor with Guaranty Tta*t Com- pany of New York, 1~ Broadway, New York 15~ N. Y., which is to he appothted suhsedption agent. Subseriptima wazrtmts are not to be mailed to .tt~kholder~ bevthg ragist~ed addresses out- side of the Untied States or Canada but are to be held for such stochhalders hy the subeeriptinn { ~ agent, subj~ to satisfactory arrangements being made with the suhseription agent for exercise, sale or other disposition thereof, ~mtll 10:00 o'clock AM., Iqew York City time, on the day the subecdp tion warzan~ by their terms will ex~'e. The subscription warrants so hdd, and as to which such other a~rangrma~ts sk~ not ba~e heen made, axe then to he sald~ ff possihin; and, :o the exten~ permitted by appiinchl¢ laws and regnlatinns, a pro rata share of the ~ate net preceed~ if any. therefrom is to be remitted to each stodtholder on whose hshalf such ~alo was made or. if such remittance ia not penalttad, held for the aceomat o~ such storkbelder subject to payment upon receipt of lawful instracti~=s. In order to assuxe the Company of the gale of the fun amount of thare~ so offered, it is proposed that the offering be underwzi~a, and dise~sions for that purpme have heretofore been instituted with Morgan Stanley & Co. The tc~m~ of any uaderwriLLag a~aP~ement~, including discounls or commis- sions payable to the tmderwrlters, have not yet be~a determined upon, and doubtless wfi[ be affected hy market oondiffoas and the price at which the additional shares will he offered. It wottI~t he expected that any such nnderwchlag arrangements would provide fez the purchase hy the lmderwriters at the offering price to shavchaiders of such of the shares offered to shareholders a~ should not he purchased through the exercise of aubscriptinn warranta, end that such ~aderwrilers might reshlee a profit or in~ from their sshe of such shares apart from gaderwritlng dlseozmts oz commLealons payshl¢ to the, It is intended that the net proceeds from the sale of the additional shares ~411 he added to the working cag~mi of the Company, and th~rex~er utilized in the bnshe~ or apptied to the extent deemed advltchle to the reduction of then nutstandhag bank loans. Of the net po~eede received fr~ta the sale of such of the shares as shall not thereto~oze havre hee~ learned, an emoanL e:luai to the par % value thereof will he credited to eapitai account and the excess over such par value will he credited to ,~ paid-in ~urpltts. The aet proeeofs frma the sale of sa]e.h of the shares as ~h~ll theretofore have heeat islned and reacq~ired hy the Company wfi] he credited to treas~ stock account, and the loss or profit from the sale of such shares as shown an that account wdl he sharged or credited to paid.in surplut~ 5

AUTHOBITY TO DETKRMINE pRICE ized ~hares of Common Stock B for ~ub~crlption to holders of Common Stock and Common Sto~k B, the Board of Dire~tor~/~e authorized to delennine the offering price, within certain limitations. The /~t~ Y~ is or~ the e~rat ~ the a~thoriz~iot~ ~,~ ~ ~t ~ ¢or~e~ ~t~ori~y pr~cl~ h~" ~zt~t¢. As th~ 8hares have a par value, tho statutory p~o~l~on tha~ share~ having a par value ~nay ~ot be ~ued at le~ than the par v~e, wou]~l limit ~cord~gly the authority ~o be con£erred; under pre~e~t market conditions tI~ limitation wott]d have no pr~vtlcaI appli~ation~ ~ thv thir~ limitation mentioned below would ]~e controlling. Th~ ~econd limitation is that th~ determination of the ot~er~ng pl~ mL~t be mad~ withi~ ten ~ay~ prior to the raaki~g of the offerin8 to ~tockhoId~. The third timlta~ tlon is that th~ pri~e ~o deterwined sh~l[ ~e no~ ]es~ than 10% ~or more th~ ~0% ~eIow the market price of then out~and~ ~hares of Common Stock B on the ~late of such determination. ~t m~y be noted that ~ would a]lo'~ more latitude ~ to price, ~n each direction, than the price rsnge pre~e~y vonterap]ated for the proposed off~r~n~, to permit alteratlo~ of preset plans should that appear necessary or de~irald~ in vlvw of later conditions. In tho ewnt tha~, prior to the final adjournment of the ~wtin~ tbo Bo~d of Director~ Bha~ have determined th8 ~rive at which ~hares of Common Stoc~ ~ ~haU be offered for ~b~cription to holders of C~mmon Stock sad Common S~ock B, then it i~ intended ~o repor~ to the meeting the price so de~ermlned l~y the Board oi Directors together "~th a propo~a| that the p~ice ~ ~o deterrnined l~e ratifie~i an~ approved, .~tho~t derogation of t~ authority of the Board of Directors to determine s~ch p~ce i~ such authority shall thereto~or~ ~av~ been ~ivvn ~y ~he me¢~g. :[t i~ t~e present e~p~tafiou thst the price ~ ~e dewrmlned prior to the final adjournment of the meetin~ and ~e submitted to the m~tin~ for ~pprovaL Howvver, ~hou]d the price not so ~e ~et~rm~ed prior to such time, or ~hou~d the price ~o bo ~e~e~ine~ an~ b~ approve~ ~y the meetin~ h~ ~e oiler and sale of the shares ~ contemp]atecl not ~e constm~mat~cI ~y reason of market conditions or otherwise, then it is dee~ed dc~ira]~l~ that IJae Board of Director~ ~ould haw au~o~t~ to tho extent set f~rt~ Whfl~ under Section 14:8-17 of the Ce~eral Corporation Law of ~ew Jersey authority i~ ~ven to th~ ~o~d of dir~vtor~ of a corporation to determine tho prlcc at which ~al~ shall be o~'~red to orgavizallon of the C~pany and it ~s therefore dee~ed deslr~l~ to ask f~r'a votv o~ the share- holders on Proposal B ~ wen as on p~opo~a] A. The ~I~orhy to be vonferre~ by ~uch proposals wo~id relate to pre~tl-f authorized ~hare~ of Cor~rnon Stock B that ~re not out~tandln~ ~ the ~a~ of th~ public, aggregating 1,0~,963 ~hare~, of which It.s them I~8,000 ~are~ would remain uni~ued o~ constL~nmat~on of present pls~s. FII~A~CLkL ST.kTEMENT ~ Thv annt~al roport of the Company for thv y~ar 1946, mailed ~.¢ith fl~i~ proxy statement to holders of Preferred and Common Stock, include~ con~olidate~ balance sheet~ at Decer~ber 31, I945 ~u¢I Devevd~r 31. 1945, and ~onBolidated sta~raent~ of incom~ and ~urph~ ~r th~ ~r~ e~de~t ~ tho~ dater, of the Company and its ~ub~idi~ri~ ~¢hv~e aceo~mts ar~ co~oIiJate~i therein. Such financial statements in the opi~io~ of the mav~e~rae~t ~re a~equat~ /or the exercise of prudent ~ud~ ment on t~e propo~,ds menfione~ n~ove, ~nd re~erenc¢ i~ made to ~uch finm~ial statements, v~hlch are i~¢orpvrate~ her~in by such reference. Fur~e~ financial ~tateme~ts o~ the Company are w f[~ in tho o~ce of the Securities and Exchange Commi~ion, Philadelph~, Pa. Bnd in the o~c~ of the New Yo~k Stock Exchange, Ne~ Yo~k, N, Y. REM~ERAT]ON R~nu~r~n o/ Directors ar'd Offers. The ~tggre~ate amount of rernt~eratlon received from th~ Company ~i ~ts ~ub~icI~ie~ di~ct[y or indirectly, on an accrt~I t~is~ ]~y each ~er~on who ha~ acted ~ a d~revtor of the Company durln~ the past iis~l )'ear, each per~o~ nominated ~or elec- tion ~ a director of the Company, and e~eh person who ha~ acted ~s an o~cer of the Company but not a~ a direvtor and who has received payments of remua~rafion totalin~ more than $29,0~K] du~ such i~Bca[ year, is set forth in the ~oI]owi~ t~bulatlon, which aL~o states th~ excess, i~ any, 6 -- y

t c~ remune~allon 0ver the total rcmun~callon ~c~vM fQr the fiscal each p~evious hy ~ec~ur, year ~ir~ cr nomin~ ~r~g to~ r~a~ra~on o~ more than ~26100 ~cr scrdc~s ~dcrcd ~ 194& I ~-4 Remanerafion g.~oses cf Remuneration Name t~ Accrued (Or 1946 A~crucd tor 1946 O*~¢r 19~5 0rphr~s D. Baza]ys $ 30,333.32 $ 9,~00.06 -~ Rinh~xd J. Boyhn4 56,2~7.82 23,247.82 Thomas P. Conners 17,416.68 739.98 James p~ Coou~ 230,500.92 I83,990.12 John A. Cruwe 65,~O0.00 none John $. Dowd g5,000.00 none PreSton L Fowler~ 260,500.92 175,556.76 C. Huatby G~t 15~43&46 none Patrick H. Germant 29,934.78 none i Paul M. Hahn 230,500.02 151,515.40 % Hiram R. Hallmcr 25,000.00 Done E&nu~d A. Harvey 40,000.00 none George W. Hill* 295,611.88 127,302.68 George W. Hill, Jr.S 230~500.92 223,872.47 F~nT L /Dlyard 30,~O~DO none James El Lip~eomb, Jr. 12~00O,0O none Willh9~ H. 0~shnry 45,~00,00 Done F~d B. Reuter 35,000.00 4,166.66 Vincent Riggio2 285,669.4,5 206,683.93 Jam~ F, fi~rinklaud 33,(~8.CO none 1 Dcccas~l during the year 19~. ~ Elected President September 17, 1946. Elected a Vice President November I, 194& 4 Elected a Vice President Nuvemhnr 19, 1945. 5 Rcceivccl no remunexafion from Company or subs/dlarles during the fiist eIev~a moulh$ of 1945, ~0eing in 1fifillary servi~ during that time. A group life insurance policy was I~iaced in e~ect as o~ October 1, 1946, covering all regaL~ fuththne empiny~ of the Company or of lls ecusalidatexl subsidiaries and certain employees of othe~ subsidiari~, the maximum amount of insurance thereunder t~ any o~e employee being Iimited to $1fi,(~0. The cost of the insurance /s payable ~atably by the C~mp~my and such subsldla~ies. Each o| th~ abov~uamed indivldual~ living at the dale of such policy was insured for the maulmttm ~ounl z~l~r ~lloh ~Oll~. The gross premiums paid thereunder in reapect 0£ each such indlvidua~ w~ ~O.BO for the app~e~Ie par~on o~ the y~r 1~. NO such dlrcctor, o~ccr or nominee was indebted to the Company and its subsidlarie~ during such fiscal year, oth~r than (rent trsmsactlons in the ordinary coltrsc o~ buslne~. The aggregat~ amount of rcmanera~oa ~or such fiscal year, received ~rcm the Company and Rs stthridiali~, d~ectly o~" in~r~.ly, on an accrual b~.i$, by all the dlr~ctors and o~ccr$ o~ the Cure. pany ~ a group, wa~ |2,073,8~2.76, which was $1,168,392.51 mor~ than the aggregate received ~or th~ pr~o~ ~ year, and w~h W~ less th,~t 3/10 o'~ I ~ o[ the Company's consolidated n¢~ s~c~L Rem~ralinn o~ EmpDyees. The number of employees of the Company and it~ aubsidiari~ (other than officers aud directors ot the liomp~ny) who, during the last fiscal }.ear, ~cived /tom the Company and its s~idiari~, remuneration in e~¢~ o~ $20,C~0 hat not more than ~50,000, ~nd the aggregate amount of remLm¢Ia~ola paid to the persons in this Kroup, was: Number Agitate Amotmt for Gmp 14 $$¢zg,952.01 The numhnr o{ employees o~ the Company and its subsidiari~ (other than ufllo~rs a~d direc~ora o£ the Company) who, during the last fiscal year, received from the Company and ils suhsldiafiea, ll~un~rat~on in ~s of ~50,000 ~ut not ~ore than ~160~000, and the ag~egatc amount o~ r~u- neration paid to the persons in this group, was: N~m13~ Aggregate Amount tar Grou9 0 0 .! L~ )

T The number of ~pIoyees of Iho Company and its subeldlaris~ (other than o~eers aad dlreetora of the Company) who, during the last gseal~year, received from the Company amd its sul~iaries, r~mun~rafion in e0cce~ of $1CO,000, and ~aggregate amox~nt of remuneratloa pald to the persons in this group, was: N1~m~ Ag~u'e~ ~motmt tar Groop 0 0 Ramur, erat~n o/ O~r Persona. The following-rimed persons (other them director~, o~cer~ ~T emp~ye4~ of th~ Cox~pany) ~i~ aggreSs~e ~emune~uti~ ~om the Cx>r~po~xy dux~g the |~t fisoM yBar in exce~s of $~0,000. for services in tho eapaciL~e~ d~h

OT~C~ ~P Tai PR|S IDE ~T THE A~RICAN TOBACCO COMP~HY 121 FZTTX A~U~, NEW YORK 3, ~ March i, 1947 TO THE STOCKHOLDERS: During the past year, to our deep and nbiding regret, George W. Hill, o~r President for twenty-one years, came to the end of his life and of his long term of outstanding service to our Company. Your Directors honored me by electing ms his successor° It is my earnest hope that, i~ carrying on in Mr. Hill's place, I will have granted to me the same confidence and support that the stockholders of our Company Have him these many years. The enclosed Annual Report deseribes the results of the Company's operations in 1946. The release of tobacco products from price ceilings during 1946 enabled the Com- pany, during the latter part of the year, to keep pace with increased costs and to operate on a reasonable margin of profit. Consolidated Net Income for 1946 was $29,886,557, as compared with $19,697,066 for 1945. The Company's sales vol11~e in 1946, both in dollars and in unit cigarette sales, was the largest in our histo~. Consolidated Net Sales amounted to $764,167,590, -- more than double the Consolidated Net gales of five years ago, which amou~sted to $365,648,864 for the year 1941. In the opinion of your Directors, this greatly expanded sales volume makes advisable 8/i increase in the Company's capital, and they therefore submit to you proposals contemplating the issuance and sale of additional shares of Common Stock S, and the offering of suuh shares for subscription pro rata to the holders of CoEJnon Stock a~d CocK, on Stock g. It is presently contemplated that the offering will be made at the basis of one share for each five shares of Common Stock and Common Stock B outstanding at the record date. With the AIl~Ual Report and with this letter you will re- ceive the Reties, Proxy Statement and Proxy for the Annual Meeting, which will be held on April 2, 1947.

-2- In the Notice of Meeting. the proposals referred to earlier in this letter ate d~signated as "Proposal A" and "Proposal B". They &re explained fully in the Proxy Statement. Your Directors urge tha~ you vote "Yes" on both "Proposal A" a~d "Proposal B". Your attention is invited partioularly %o the portio~ of the Proxy Statement beginning on page ~, oaptioned "Proposed Sale of Common Stoc~ B", in which ~eferenee is made to the d~termination of ~he offering prioe, the contemplated basim of the offering, record date. mailing of ~ubsoription wa~ts and expiration thereof, a~d under~rlting of the offering. In view of the neoessi~y that a quorum be present or rep- resented at the meeting, and tha~ a majority of the stock present or represented vo%e favorably on ~he proposals, your cooperation in execu%inE and rQturning your P~oxy promptly will be especially apprecia%ed. Enclosures

1946 OPERATIONS AT A GLANCE THE COMPANY RECEIVE[: .dmmee AlU~r AAA • . . . . . . . ~7oo,a.~s,uuu RECEIVED FOR THE GOODS iT SOLD (illustrated are only a few of our 200 or more differ- ent trade-marked brands) $764,168,000 RECEIVED FROM DIVIDENDS, INTEREST AND MISCELLANEOUS $2,689,000 .... THIS IS HOW IT VT'A~ USED OR SET ASIDE: o / /

FOR REVENUE STAMPS AND TAXES FOR TOBACCO (including applicable expenses) FOR GOODS AND SERVICES INCLUDING WAGES $437,936,000 $199,779,000 $89,299,000 FOR DEPRECIATION ON MACHINERY, BUILDINGS, ETC. $1,598,000

OOO" lS;g'99L$ " • • . • . • • • riO:I SJLN N O:)~V H:)IHM 000'1~0L'~|$ SQ||N IRIN.ILNt JJ|W OZ SNldUNS OL NOIJLIOCIV IIOd O00'6CL'LL$ SIIIOIOH)I3OLS OJ. SON|OIAI(] tiOJ O00'~L8'95 I SH~LLNI )INVII QNV aNOg IO:1

The Preaident, The Board o£ Directors and StockhoIders o{ TEe Ar~er~c~ T~b~co Company, 111 FifEh Avenue. New York 3, N. Y. We have examined the eo~solldate£ balance sheet of The American Tobacco C~mpany as of December 31, 1946~ and the relaged consolidated sta~ment o{ income ~nd ~urp~u~ {~r the year ¢hen e~decl. The fin~a~ia~ statem~ of American Cigarette and Cigar Company, a consolidated subsidiary. Were examined by other kadepetLdent public accountants. With the exception of that sub~idlary, we reviewed the systems of ~nrernel control and the accounting procedures of the companies and, without making a detaiIed audio of the transac~ons, exam{n~d or teosted ~ccount[ng records ~n¢[ o~gr ~u~po~dll~ ev{dence by methods and to the <xrent we deerne~ appraprhte. Our ~xam{n~ ~on was m~de in agcordance with generally ~¢¢epted a*zd~ting standards appIieable in the circumstances a~d i.¢~uded alI procedures which we considered n~easary. We ~a6e ~ ~1~ exam~aa~on {or th~ year ~945. Lack of esse~tla~ data attributable to disturbed ~oreig~ conditions preolud~s our ~orz~ing an opiofon with respect ~o the ~nvestme~ts o~ The American Tobacco Company in The America~ Tch~cco Compa~" of the Orient, Inc. (~ ~n~ol~ ~w~ed 4~r~esti~ ~uh~{dia~y wla{¢h ~pe~ates a T~k~1~ lea~ bufing otganlzafion i. the Near East) and in the wholly owned French subsidiary. Otherwise,ln out" open,on, the ~e¢ompanylng balance sheets and related stater.en~s of {ncome and ~rp]u~ present fair]y the consolidated po~it~n o~ The American Tobacco Company and the sub£diaries inol~ded therein at December ~1, 1946 and I94~ and ~:he con~olldatcd resu~t~ of ~heir operations for the years then ended i~ conformity with generaIly ~ccepted accounting prlne{ples appI~d O1% a Co~$i$~eni: ]~.8~8. LYB~.A~CD~ ]~O$$ BROS. & ]VIONTGO2*~B.y New York, February 3, 1947

CONSOLIDATED STATEMENT lneludhag American Cigar¢~I~ and Cigar Company and zll wholly owned do~ for ~h¢ :~ rs Sales, lets trade add cath diseou~t~ retnrns and a]lowa~l¢¢s ........................................ Cos¢ of sales, selling, geaeral and adn~nlserativ¢ ~pcnses ................................ OPERATYNG PROFIT ........................................................... Add: Dividends and ~aterest from subsidiaries not consolidated hetd~ (Note 1 ) ..................... Other divider*& and in,ernst ............................................... Oehez income ........................................................................ Dedlw?: Interest~ amo~tlzatioa of dilcount and, ia 1945, eedemption premium on 3% debentures O~hcr L~terest ~d dlsc~u~t ............................. Other expense~ and 10~s~ ................................... INCO~,{E, before state and federal iacome taxes ..................... Dec'vet: ~r.at¢ ~11¢om¢ t~l~es ............................................................... Jg V Federal ~nconle taxes ..................................................................... ~ederal excess profits tax¢l ........................................................ Deducfi Port/on of ne~ L~eorae of Amer/can Cigarette and Cigar C©mpany appllcabie Io min~rlty inte Add, Adjustment of prior year~' federal and s~ate tax~ including interest, less related cxpe~lses ....... NET INCOME ............................................................................. Deduct, Four quarterly cash dividends of $L$0 each oa six per cent oumulatlve preferred stock BALANCE added to surplus ac¢oun~ .................................................... SURPLUS, beg~nnlng o~ year ............................................................................................. Add, Proceeds from iatur~nc~ policies on llfe of Mr. Georg~ W. Hill, deceased, less cash surrender v~. Deduct, Four quarterly cash dividends on common stock and common stock B at $1 for first quarter SURPLUS, end of year (Note 5} ................................................. Depreciation pzovlded and charged to costs and ex~ -~s. Th~ no¢~ refereed ~o ~b~e ace 8

TATEMENTS OF INCOME AND SURPLUS *holly owned dome*tic subsidiaHes except The An~efican Tobacco Company of the Or~erlt. Inc. for t~e~rs ~9~ud ~945 1~46 .......... i ....................... $764.167.~90 ................. i ............................... 70~,40L297 ................................. ~4,764.29) 1945 $557.5¢7,50~ 514.594,148 42#63.357 .......................................... 703,651 ........................... l~O,fin2 .......................... 2~g,719 $ 5~,9~7,~6~ ~,183,$97 207,931 $44,7~g.758 m~ur~ ................................ 5,567,714 6,4fl.4~7 1.243.989 410,8f8 7~1.028 7.542.731 65g,040 7.529.39~ 37.26~,36t 1.463,000 I~466,~19 lg,074,000 • 12.353.313 m 19,537,0~0 4.125,000 I7,~44,8~2 ............ O : Q ..... ZZTIIII iii IZZII IZIIIII CZZTZTTT' iiii ZZIIISIZ ~ ,=~,~ ~ to rmnorlty interest ............ 68,017 28,7S9,517 expeases ............................ 1.127.040 .................................................. 29.gg6~5~7 ~erred stock ..................... 3,1 al,98Z ........................................................... 26,724,J7I ....................................... 73,098.729 :ash s~rrcaadcr vaIu* thereof ................ 1,546,057 74.644*786 I01.369.36I fez flt~t qua~er lind $,75 lot s~bsequent quarters I4,566.540 ................................................. $ g6.g02,821 sr~ and exrlb.~ mnIJl~red tO $1 S98 012 in Z946 a~d $1.613,493 in 1945. ~erred to above ~re in-integral parl off t~z~ stattm¢~t. 19,32;,5~I 6109~ 19,262,4)9 434627 19.697,~66 16,~3L054 71,130,129 m 71,130,I29 87,66;,213 14.~66R4 $75,098,729

CONSOLIDATED Including American Cigarette and Cigar Company and alI wholly owned ~omestk • Deeembe~ ~, &SSET$ 1946 1945 Domed dei~ir~ in banks and cash on haad ......................................... $ 17,8~1,117 $ 22~07,661 Federal exce~s I~rofits tax refuad bo~ds ............................... Atzcounts receivable, o~tomers ........................................................... MiscellaneOus acccamats receivable ..................................................... Leaf tobacco, manufactured stuck, operating su~ie~, etc., ~r east . • Cash on dep~t with sinking ffund trustees for redemption of debealures Ac¢ounts receivable from uacon~olidated ~ab~idlary compa~lies ................. Tor~l current assets ............................................. 453,462,228 -- 3,826,6J0 26,999,471 25,139,202 919,963 1.188,95; 407,013.748 $34,472,741 153.7J7 554.794 877,444 J87,992,6J3 h'/eg~mcttts: ........... ~i'lfi~Ffukst&~r:e~T~6~ congD~fi-dated her~m: Wholly owned foreign suhsidlaeies (Note ~) .......................... Partly owned ~uksidiaries: Cuban Tobacco Company Inc. (Note 2) .................................. Others (Note 2) .................................................... The American Tobacco Company of tile Orient, lnc ............... Otto2 inve|~nts, at ~tmo~ll~t~ lxo~ in excess O~ cost ................................. To~l inv~tme~Ei ................................................................... Mortgages, note receivable, insurance d~t~sirh ere ...................... Real estate, machinery, ~.xtures, etc.* at cosl (less allowance for depre- ciation, 1946, $24,660~077; 194~, $24~I08,003) ......................................... Prepaid exposes and deferred charges ............................................. }~rands, trade*marks, patents, good will, ere ............................. 10 6,718,927 6.718,927 ~,~69,817 5,869,817 2,266,046 2,2~6,046 429,000 4;8,000 1~,283,790 1~,2~2,790 1,317,761 2,1~5,072 16,601,3~ 1 17,477,862 2,2~I,288 2,2~7,~32 22,783.276 18,694,499 3,4~1,~44 2.987,311 54,0Y5,431 54,099,43i The ~ot~ ~/e~red to ~b~ve ~re

.. SHEETS subsidiaries tmcepr The American Tobacco pany of the Orleu~, luG. LIABILITIES 1946 No~ l~yuble to banks .............................................. $ 85,000,000 ' A~mu payable _,. ................................................................................ Dividend on preferred stock Inr quarter ended December 31 Interest accrued ........................................................................... Provhloa f~r taxer .................................................................................. Advertising and other accrued expens~ ..................... Debea~are~ to be redeemed ha 1947 through sinklug fund ope~a~ons, estimated ~e ¢on~ra) ............................................................. Aceoun*s payable to unconsolidated subsidiary C0mlmmU .................... Total current liabilities Three per cent debenture, less at December 31. 1946, ¢*elmated prlu. cipa] amoan~ to be redeemed in 1947 ac prices as provided by ~he indencercs] through sinking ftmd operauons; ~nd le~ at December 31, 194~ amounts acquis~ lur reriretne2at in 1946 through sinking ftmd oprra~ona: -- T~,mlu¢-Aprll t~, 1~62_.=__.-= .......... __ ~l.~v=n .-~. ~ r~l~r 11 ~9~9 • Four per cent bonds macutlug Augast 1, 19~1 ........................... ~ DeferL lu ................................................................ Minority i~tere~t in American Cigaretxe and Cigar C0mpa~y: Ca#tal stock ............................................................................... Surphts ..................................................................... Total mlnmqty mtercat ......................................................... CAPITAL Capita] stock: Preferred, six per ten% ctwnula sire, par value $100 per share, a~chorlzed $40,106 shatts, issued and ouusr~udlug ~:26,997 shares ........... Common, par value $25 per share, authorized 2.000,000 shar~ issued 1,609,696 shares (incindlug 93)713 slutcs in trea~) Common Bt par value 12~ per sh2re, mthorJzed 4,000.000 shares issued 1946, 3,134~217 shares; 194~ ~134fl92 shares (including 16g~150 shares lu ~) ............................................................. y- - Total c2pi~al stock ............................................................ 5UI~PLUli (Note ~) .................................. LeS~ T~e~ stock* at coot: 93.713 shares o~ ¢orcaxton ~tock and ~ ~ 168180 shares o~ common stock B Total capita] and surplu~ ]e*~ t rcasury stock ................. o /. I1 194f $ 37,000,000 11,$32,119 J,~19,2}8 790,496 790,496 1,1~2,87) L1~2.87~ 27,988,~ 2~,403.I7~ I,~92,34~ 1,035,$20 6,14J,000 772d57 9~6.~44 134,773.98---'~ 73,1J7,S4"6 84,~7,000 ¢ 87.781.000 8~1.25C 8~1,2Y0 311.703.2~ 2~6.232,096 715,150 870,6~0 8L022 83.946 798.172 9~4,~96 52.699,700 ~2,699.70I ¢0,242,409 40,242,400 78.3~.425 7~.5 ~4,800 171,297,~ 171,296,900 $6,802.821 73,098.729 258.100.346 244.~9f,629 1~,177,987 I~ 177.9g? 2 ~9.922.~ ~'9 226,217,642 $$$2.~28,918 $483,$09,488

for 1946 aJad I945. respective y 2. Tha American Tobacco Company has two wholly owned fordgn sab~idiar;es. One is loea~d in England; the other in France. The investment.in the Br[tbh subsidiary am0tm~s to $6.718,926. Based upon cth}e advice, the ipp|icthle net ~sscts of this subsidhry (tramIated into dollars at appmpriate rates of exchange) amounted ~o $7,127.~I1 a~: Deeemh~ 51, 1946. Ia 1942~ due to war conditions, the Company provided a rea~ev¢ su~¢isat go wr/ce off tha accouar recdvable ~rom the French subsidia~ and to reduce its inv~rr~at in this subs/dlarg to a namlnid amount of $1 with a ~ul~g ~¢ducti~a of ~edcfid Cares ~or the year 1941. The Company cannot ~w deterndne what Imrtloa of this wrist-off may edtim~ndy be res~ed nor caa it now d~tc~mlne the amotmt of iedend taxes which will be applicab]e thereto. The sub- sldiary has reported that its proper~ie~ ~re inrac~ ~nd that opefar;o~ were res,,~ed ia 1946 and • t December 31 were 40~ o~ ¢apadcy, Tha nec a~s applicable to the i~vest~ent in Cuban Tobacco Company Inc., based upon the ~amsolldared hahnee sheer of Cuban Toha¢co Company In¢. aad subsidiari~ (without adlusc- m~at fo~ any income or other tax~ chat may Income payable on deeisra6on of dividends by ----- dom~t/e6r~otdgn subsidiaries o~uba~ TobacCo CompanyWne.). accounted to $8,8~6~319, - tmderlylng thls iav~trdent are an t~tected on the books of subsidiarle~ of Cuban Tobacco Company In© ~ The net assezs appllcabI¢ ro the invest~a~at ha other partly owned wabsidiadgs an~ounted ~o $2.583~03. including intanglbh." asse~s off $329,064. at D~emher 3I~ 1946 L Of the sur]pIca al. Dccgcnbcr 31. 194g. $lg.177.gg7 IS represented by ~:reasury stock. ~ad such r~s~ry stock beta ~t/red by statutory proceedings gad capital reduced accordingly as of December 31, 1946. capital would thereby have been MuM by $6,~47.32I and surplus would have boca reduced by $11.630,g~;2. 4. ~0. 1944 the Odiee of Price Administration insti~ted a~ acnon ~gainst the Company Inr treble damage, clalndag ovecchatge~ in an amended ~moun~ of $347diO7.3fl to eextaln whoislalen. Fobbsts and dlstrlbuto~. In an interlocutory deeLsi~n tlm Com'~ concurred with the claim of the O~.A. tha~ a reduction in service ~e~s durhag ~he period Novemhat 1. 1943 to July 1, 1944 {or scaw/clng Army and NaW actbsltlcs is. ~o the extent ot the amemnt of such redu¢. - ~on. in effc~t an i~orcas¢ in ¢xec~s off maximum pnces established for sucis sales in the sum In January 1947 a "portal to portal" aetin~ was insthured against the Company involving lr~ Philaddphia ¢aad Charleston ?lanes cIdimlng appmximately $1~500.000. a~ equal anaount as liquidated dama~ ~aa a~mrneys' fees. and another aga/~c a consoIidated subs/diary nvo v ng its Lexingtoa. Ken~cky pis~t v~thout spedifica6on of the amounz dia/med. ~I~e acrion~ are bc~g contested and no effect is given thereto in the a¢companygag fina~elal 12 1

L 13

Like the late George Washington Hill, Vincent Rigglo has made The • his llf©'s work. Forty-two years ago Mr, Riggio aad for forty of he was in close, day to day Wa~hlngtc~ Hiil in actively building up your Q when Butler-Buder was merged with The American Tobacco he hec, am¢ a department manager of sales. By 1919, he had risen Sales Man~ger for all o~ the United States and in 1922 became Mana In 1927 he was elected a Director and in 1929 he became -- --~ of Sales. th© post he held during the 17 years m . which American Tobacco sales ro~e from $248,000,000 to their present annual .~• total o~ more than $764,000,000. This is the man whom on September 17, ~1~4~*~" your ~ Dzcectors" unantmou' y elected to be President" of your Company. • ,-~ ~ through it~ ability to sell . . . to dr~n~lize to the smokers of the n~tion the f " consistent, high quality of its merchandise. And, in electing Vincent Rigglo, ~" your Directors have ~gein chosen a President whose entire business life has V senlng of fine tobacco product.s. The Board of Directors which will work with Mr. Riggio to carry forward , is a board of working ~xecurive~ It* singleness purpose is evidenced by the fact that every Director is in active charge oi American Tobacco Company. are no Directors sdeeted hecause o~ outside ~ffillations or cca~necxions, man who she at the Directors' tabl© with Mr. Riggio has a record o~ long asscclauon and outstanding performance in his division o~ the Company's their work of building the b~iness, mainly the late George Washington HKI, totals 453 years.. of exper;ence immeas~r ably valuable both in phnning znd promoting progee~. 14

483 YEARS OF EXPERIENCE SIT AT VINCENT RIGGIO presldem 40 ~,'EA R5 THIS TABLE

1946 Report

T-

C, In this supplement you will find some interesting facts about domestic sales and advertising expenditures of the three leading brands of cigarettes, as compiled in an independent, cemparative survey by The Saturday Evening Post. THESE CHARTS ARE REPRODUCED BY PERMISSION OF THE CURTIS pUBUSHING COMPANY

---

---

---

ANNUAL REPORT OF I~OR THE YEAR ENDED DECEMBER 311 1945 v~ ~VVI'H CON~ULII)A3"~D B2~I.ANCP, SII~I2T ANI~ ('ONSOI.I/3~TE'D ST2~TEMIgN1" OF INCOMI~ /tND SUP*pLUS E.t'etl, ii~e (lNer 111 blFTtJ AVENUE, NEW ~ORK 8, N, Y.

U~J~HI L~, ])i ]~A~AB] S RICITAIID .-. ~Ip. LAN lo~rx A C~o~ IhIESTClA L. I"OWIER C }h >aLeX' Gmsox pA~:L 1/i. IA.~K'¢ 1 )iI<~ L]C L i )I,' ~ V1~cKx7 l~;~;<ilo I{n{A~! l{ Hxxxl}/. I{IIM/ .';D 1. IL\IXE/ ( ~E[}R(]E ~V, }JILl I~XRY L HILYARD \\Jl LIAr! I-I O~S~CRY [:1~1~ ]3. I~U~I~ OFEICERS Gl..ll<~ kk HIr,L .................. 7'reoideut I xxilcs k (~<~x ................ Vice \/resident Pl~l!gtlx g ];/l~VllClt ................ Vice President p~l L i~]. lt.X]]x ...................... \;ice ]~reJ<]mlI G~oma: 1\. Iqicc, JR ....................... \;lee Presh[ent \ IN/?I!NT RaOI;IO ................ Vice Pl~h~el~t I~tCtlARD ]. ]3OYLAN .......................... ~<ecleI~rv [Oil~\ 1~, ]T~A~.L(IX ................................ \~slsL.%llt SectetaO IAjJSiTCig]7~ \. I~ARV~,. ........................ Treas~lFer ~I\RRy g. ~ILYARD .................... Asslstallt Treasurer LDk/ARI) D. [.bAIlF.g-~y .................... ~sSiS[~ll~ a\udivor A. L~ROV J,~xso~ ...................... As~isant Auditor EXECI7 t 11 lC I )FFT~ E 111 FKth Avem:c Nt~ Y~*I< 3, N. Y CORV{ >R \TE ()FLICK 1/7 Main S'.reet. P'lcn~il:gl{m X.J. TRANSIqJ{ ~(lEX / Guaranty t'ru~t C~mlp~tuy o[ N~w 1~11¢ .New Y~.k IS, X. \ REGISTR \l,~ C[~3 Bank l~arnl~rS 'l'ru~l C~inlpany New ¥o~ 15, N. Y, f

THE -~BtEbIICAN "~OI~CCO CI~,[pAN'~'~ Tlle "treasurer I"esl/~tfully subnllts lhe consolid~lt~d ~atcnll!nt o~ incnnlc and surp!ll~ tot ~he year 1945, the c~n~,~]~dated baI~lncc slleet ~ ),~117¸ O~lnl/~my ~s oi December .31. 1945, c~l ~bc Z'~l~rl o~ gybranl/, l~oss t~ro~ & ).~c!nt~olnery outline, in simplified l~icture ~orm, [hc result~ ior the yea~ 1~45. Zlemillg~o2~, X. J, March 1, 1946

THE COMPANY RECEIVED ........ $559,383,000 RECEIVED FOR THE GOODS ~T SOLD (illustrated are only a (ew of our 200 or more differ- ent trade-marked brands) $557,558,000 RECEIVED FRO/~I DIVIDENDS, /NTEREST AND MISCELLANEOUS $1,825,O00 11115 IS HOW IT WAS USED OR SET ASIDE:

FOR REVENUE STAMPS AND TAXES Q $307,577,OO0 FOR TOBACCO (including applicable expenses) $145,687,OOO ~" FOR GOODS AND SERVICES INCLUDING WAGES $77,947,000 FOR DEPRECIATION ON $1,613,OOO MACHINERY, BUILDINGS, ETC. ~~

FOR BOND AND BANK INTEREST FOR DIVIDENDS TO STOCKHOLDERS FOR ADDITION TO SURPLUS TO MEET FUTURE NEEDS .... i $6,862,000 $17,728,000 $1,969,OOO WHICH ACCOUNTS FOR .... $559,383,000 G

O The President, Tile IIoard of Directors arid Stockholders of The Americar~ Tol/acco Company, II1 F~th :kvcrme, New Y~k ~, lq, Y. We have examined the consdidatcd balance sheet of The \nlerJca~ Tollaccu Company as cff Dccclnber 31, 1943, and the related consolidated stat~uent oi interne a~d smplus for the year tben ended, The fiuandal statements of American CigareI~e and Ci~r Comp&ny, a cotlsolid~md sullsidia~, were examined hy othc~ i~lependetlt ptlbli~ &ccountaRts V~Tith the exception ~3I that $~bsidi~ry, we Feviewed the s vstelllS ill irlterrl~I c~3ntrol and ~lle accotl~ting p;ocedtIrcs of the colllpallle$ and, wit]loul making a detailed ~udit Of th~ trana~ctlalls~ cxall~ine~ or test~tl ~ccotlntj~l~ records ~ld other 8tlpportin~ evidence by ~lethods a11d to ~]le extel~t we deellled approllrlate. Ot~r examination ~s mad~ in accordance with generally accepted ~.~diting standards appIica]~le in the circumstances at~d inclttded aIl pr~zedt~res which we considered n~c~ssI'y. Lack of essential data a~ribu~ble to disturbed forelgr~ conditions precbtdes our forlnJng all opiniol~ ~Jth re~pect to the investnlent5 o~ The ,A.~leric~tn ~ ol~a¢co Cotn- pany ~n The American Tobacco Compa~ of the Orient, Tnc. (a wholly owned d~mesti¢ sttbsidia~' which operates a Turkish leaf buying organization in the Near Ra~t) and in the ~holly ~wned French subsidiary. O~erwlae, in ou; opinion, the accompanying balance sheet a~d related statement of i~¢ome aJld surplt~s present fairy the eonsolhlated position of The American Tobaccr~ Comi~ny and the s~b- si~/~ar~es ine~ded ~re~n at December .31, 196~, and lhe cons~dated results o~ their operations for the year, in conformi~ wi~h generally a~epted ~ccouutiz~g principles applied on a 'oasis consistenl with ~hat rA the preceding year. LY~R~ND, ROSS ~RO£. ~ ~IO~TGOMEgY New York, FeI~ruary 16, 1946 0

CONSOLIDATED STATEIv~N'I In¢lttdlnit American Cilarette and Cigar Company at~d all ,~hoUy owned do for the y,p~ l Sales, less trade ~ttad cash cLiscoutlt~, r~turlas ~nd al[ow;lnce~ .............................................. Cost o~ sales, selling, gener~.I and adnlinistrative expense~ ............................................. OPERATING PROFIT, b~fore depreciation alld state a~d f~deral taxes ........... Add: Dividends and interest fro~l~ partly owned ~ub~id~arie~ iio~ c~nsol~dated he~eln (~ote Div~deads ~rom wholly owned ~or¢~gn s~bslc/iary ~ co~ollda~eci h¢~ela (Note 2) ....... Other dividends and. it~tercst ................................................................. Other ~ncome ..................................................................................... Ded~c~: I~tt:~'e~t, red~mptiolt pren~iLtrn ~.rld amortization of c[i6cou~t o~1 twcnt~ y~a~ 3~o debe~ I~terest, redempLioll prel~li~l~ a~d arr~rtizatlon <)t d.iscour~t on ~wentv-~ve year 3~ de/ October 15, 1944 ..................................................................... Other i~terest a~d discount .................................................................. Expenses ~lated ~o issuail¢¢ o~ twenty ~ve year .]~ debenLll~e$ ............... O~he~" ex~ii~s and losses ......................................................................... INCOME, before depreciation and state a~d ~e~al t~xe~ ......................................... Deduct: S" Depreciatioll .............................................................................. ~.- ~t~.te ~ralXch~e a~d income taxe~ .................................................................. Federal in¢on~e and c~pital ~tock t~xes .............................................................. F~der~ll excess pro~].~ ~.1~e$ ................................................................ DedIlct, Port~o~ of ne~ i~ome of Ai~erlc~n C~garettc a~d Ci~ar Co~llpany applicable to ~ni~ ~dd, Refund and adjustment of prior years' federal and state taxes including interest, Ie~ N~T INCOME (.'Cote 3) ........................................................................... Deduct, F'~ur ~juarterly cash c~ivld~ds of $1.50 each o~ six per ¢etxt ¢umu]~tiw preferred s BALANCE added to ~rp[u~ aceo~lnt ..................................................................................... SUI~PL~2S, beglnni~g of year .......................................................................................... Deduct: PI'ovisiota ior reserve" agaii~s~ ~rivestme~ in .~e~t~rltie~ of Ctt*o~ Toba.c¢o Company portion ~.pplicable xo m~orlty it~terea~ ~n Amer~call Cigarette ~nc~ C~g~r Cor~p~r~)~ Four quarterly cash dividends on common stock a.nd common ~tock ~ at $1 fo~ first subsequetlt qtlarter~ ............................................................... SURPLUS, end o~ yc~r (No~e 4) .............................................................. T~e notes rete~'~d to abo~e a~e

d9'ggFO£FIZ$ 60'6~TL',g60'gZ$ ~Z gg£99f'¢[ ffZ'gSt.'99.c'H ~'gI9'969'-¢~ l'8"g I Z'~99'Z8 ~#f0#'9c.6'89 OOOf~O~£W /~9"Rg~O~I'Td -- L6"90E'O]TL'9 I 007S6'I9I'g d6',qgl'706'61 O~'Iir~'c c9~6 l gg'g9'g'c9 g6II~OI'IZZ'6I g~ ggc'9£g'IL Z I't,£0'<2 tW9/ LD'g86"I 9I'2 Z~'990'L69'61 gL'9a9"t'gl" ~z 6gI"gg8'6I g9"I60'I9 L9 ggVO£['IZ gO'69~ lrOZ'l:g CI) i, Zg'.cgl~'lrg I gg'6g£'#gg'6~g 00 00~".c6I"~1 ~6"89~'01 £'0~. 00"fk30 c g. ] '1, 00'000'gl 6'g I 00"000'9~9'g I S0'00I'#fg'6r ¢~'006'Zg£ 19"~g'0gFg £g'g~['I£I'f m ~I tg6'Z0g g/'~90'9~L'di. ~?'ZgZ'ZS~'_e~I, 0FI I>'SgYglf lua~l~l! s!t{l ~ ~,a~d [~l~$tt~ till aa~ a~oq~ ol I a°t .¢L'$ pt=* ~ala~nb asa~ aoj I$ a~ ssaI 'O00'O0~'g$ "au~ ,{u~dtuoD o; ....... ~a~u~dxa pa1~laa SSal "lsaaaaui ...... ~asalu! ~¢a!aouFu ~a aIqea! 0 % ~a se part~! 'eax=~=a,{ap %g aCaZ ............... ~azm=aqap ~g .t~ ...................... (~ aloN ............... (1 axe)C) u!ax~

Including American Cll#~tt~ CONSOLIDATED and Cigar Coml~y and aI[ wholl,I owned delnestie ASSETS Demand deposits in banks and casll on hand ........................ $ 22,507,66107 Federal excess profits tax reftmd bonds ....................... 3.826 (~49.47 Accounts receivable, custonter~ .................................. 25.139.2()2.12 Miscelia~leon* acconnts receivable ....................... 1.188954.67 Leaf lobac¢o, maIlufaetnred stock, operaImg ~upplie~-. etc, at cost 334,452.74Ll1 Accounts receivable ~rom subsidiary companies ............... 877¸444.16 Total current assets ........................................ 387,992,652,60 /-- Inves tlll~Ilt$ Securities oi subsidiaries not consolidated hmein: = : Partly o/vned sM~sidiaries : Cuban Tobacco Company lrtc. I Note 5) Otilers (Note 6) .......... Wholly owned forei~l subbidiaries (Note 2) Tile American Tobacco Compan) of the Orient, Ottler irlve~tments~ 8.~ ~LIIl0111qI~ rlt2L iI1 ~:Zte~N Of CO.~I $ 5,869,81 fi 76 2.266,0~.47 6.718,927.23 438d~00.00 25.292,79046 2.385.071,9] l/,47786-37 },Iortgages, note receivable, insllrance depoMt~, ere ...... l~eal estate, macfilIlery, dx~tlre~, elc., at co~t (less allowance for depreciation, $2A,108,003,25) ................ Prepaid expenses and deferred charges ............................ Brands, trade-marks, patents, good will, etc .............................. 10 2,257,532.03 18,694,dgfi 65 2,987,5/0.6~ 54.(D9,43 L40 $483,509,487.65 ~; The llotes r~lened lo ~hove are .a~

BALANCE SHEET subsidiaries except Tlac American Tobacco Company of th~ OrienL in~. 31~945 LIABILITIES Notes payable to banks ................................. $ 37.000.000.C0 Accounts payable ......................... 5,819,238.37 l)i~idend on preferred s~ock for quarter ended December 31, I945, payable Jaauar3 2, 1946 ............................. 790,495.50 Interest accrued .................................................................. 1.152.S8292 Proxlslon ior taxes ................ ~ ........... 26.403.175.22"~ Advertising and other accrued expenses ............................ 1,035.52fl 16 Accounts payable to subsidiary companics ................................ 956.54401 TotaI current liabilities ............. 73.157.846 I8 1 it o Tklee per cent debentures. 1cos anaounts acquired for retiremen* in 1946 througll sinking ftmd operations: Twenty year, due April 15, ]962 "~ .................. Deferred illconle ............................................ 3Iinority ialterest in American Cigarette and Cigar Company: CalJi~al s~ek ........................................... ~ 870,65~ ~3 Surplus ..................... 83.94:5.77 954,595.77 CAPITAL Cal6tal stock: Preierre~, Mx per cem mlnnnlati~'e, lmr xMue $1t~3 p¢l sha.re, anthorizel] 540.]86 shares, issued and outstanding 5263)97 shares ............ 52.699.700.00 ConunolL par ~a]ue $8.~ pel share, authorized 2.000,000 shares, issued 1,609.69f~ shares (in ctudittg 93.713 sh~.re~ itt treasury) ............ 40242.400.0.) Conmlotl ]~, par value $25 Ilel" Mlare. autho/ized 4,(~fg3.000 ghares, i~slte/l 3134.1!)2 sllares (hi cittding 108,1~) shares in treasury) 183 4800.01) 171,296.5v00,00 SURPLUS (Note 4) ............................................. 7~.038,729.09 244,395,629(Y) L~'as "l'rea~ury stock. ~.t cost : 93,713 t;llares ~i comnlon stock and 168,180 ~hares of COlumon stock B .................. .~18.177.987.39 226217.64170 87.781,000.P0 ~ ......... Twenty-five year. due October 15, 1969 ....... ii~ / ~ .~71. i 94.462~000S~0 ~ Four per cent bonds maturing August 1, 1981 ................................ 831.250.00 256.232,096.18 108,154.00 $483,509.487 65 integral part of this atatement. 11

~otes Acco~panylng F~nanc~a] S~atements 1 ~asell ilpon ~nalld~l staten~ents 1%.11icll 1lave 1)eel1 exnntilled I~3 ill/lellenlLent l)tl]llic al:~ll~1111- ~. ants¸ the I1~t i11cou~e app]icallle 1o the dil'i(/ell(18 alld intele~t h!lnl the~e sll!/sil/ittlie~ ~. anlom~ted to $~.~0860 and $~99616.~ ~or 1!~45 and 1944, respectively. 2. The .~nTerlcm~, Tobacco C~mpaIly /~a~ two whlll[y owned ii/lelgn" - • sul)sidiatie~. ~)ne is located in ~ngland ; the othel in France. The investment in the British subsidiary at~lou~.ts to ~718.!)26.2~ 1]a~ed t~p~n c~d~le advi~e, the ~pplical)le net ~sset~ of thi~ ~ hsidlary (translated into dollars at appr~p~iate rares of excballge) amolmted to 85,c,~)0.69839 ae DecelzTl~er 31, 1943, T]~e car2vlt~gs of tlm ~ulJsidiaD- amotmted t~ $739.039.46 and S640.485.5;~ for 1945 and 1944 ~'espeetixeh,, Iii 1942. due to war eon/liti~ms. Ihe Colllpanv 1)rovided a leserve sllfficient to xllite off k}le itecl*ttllt receixall/e frOlll {lie ]21elldl ~tl])sidiRl'}, alll] to l'ed~lce its ]!l%'eStlllt:llt ill ~tlC[/ sulls]diaty to a rlonlinal amount o{ $1 with a rvsl~lthlg l'edtlctlon o{ fede~;~l taxes for ~lle year ]941. The Colt?l)atzr C311 /10 " ceter tm }FIR pO* Oil Of lli~ %11 e-Off may tlkhllatel) 12e resmred nor can it noxx cletermitle lhe ;tnlount i)f {ecleral mxes ~/lich will be applicahle therehl. The SullsitllRry has rep,llted that ies prollertlIs ~re intact lltl~ tllat tile3 are not ill operation. ]. Tile ('~>/llpal/x- has con~'hld~rl rellef~tltiatioI% proceedil~gs for {he re&l" 1943: no reflmd i~at8 leqtl{l"ed for that 3'ear The all/Clllllt provided Out I}1 Jllcilnle ~11 11J43 ior p~ssible l'el/e- g~tiatiml rebinds is inehlded in other income ill 1945. "£he Conll)all]" believes that ])r~fts Oll 1~]44 al%~ 1945 sales sttl~ject t¢~ lenegotiatitln ale Not excessive alld thele[C~le 11o ~, prol'~sion h~s been I/lade for tile p~/ssl]lle elhnina.t[lln and l'eiund of a ll~al'tiOl~ o~ the prt0fit~ OR sllC}% sn]e~ 4 Of tile sUl"l//tls at g)ceemlmr al. 1945 and ~944, $18, 77 097.39 is represented hy t~eagulT stock. Had s~lch treastlry ~t(ic[( I1)alt {If x%hich is O%1 lle([ ])y An%erican ~igarette and Cigar Compally} 1}con retired [~y st[tt~lt{'aly pl,l~eelling~ an([ c:~pltal re([llcecI accordlngl> as of Decemller 31. 1945 or ]944, caphal xxould thereby have been redtmed by $6,547.32,~ and surplus ~ould have 1men redtlced by $11.630.(~2 39. 8. The illvestment in Cuban Tobacc~l C~ulpan} Ir~e. ¢{lllsist~ o~: De~lla*ld note payal~le tc ~merieazz C~gwivtte a~ll (-ig~tr (o~*~p~my $1.262.(~(;0 00 ,~% Iloncl~, due December 1. 1944. extended t,~ December 1, 1954 (principal amount $&707 000) ................. 2.635,487,50 Dreferred and eomm~n ~ocks .................................. 4.472,329.26 8,369,816.26 Less. Reserve ........................................... 2.500.000.00 83.869.816.76 gill/air Tobacco (]o1%lpan3 Tile. has pledged its investlxlmtts ]]1 preferred and e,~mm~m st~cks of it~ snbsidiary c~mlpanies against its 5% ])onds (all ~>f which are held ]~x American Cigarette and (igor Company) and agairt~t its den~and note pzyable t~ a.mmican Cigar- 12

6. 7. Notes Accompanylnfi Flnan~al Statements---(eontJnued) ette and Cigar Company. Through such pledged securities American Cigarette and Cigar Company has a proportionate interest in the net tangible assets and the brands, tlade marks and good wig of the subsidiaries of Cuban Tol)aceo Company Inc. As of Decem- ber 31. 1945. the liabilities ol Cuban Tobacco Company Inc., exclusive of file 5~t bonds and demaffd note payable, exceeded its assets, exclusive o~ its iavestment in the pleferred mid common stocks of its sul/sidiary companle& The net assets applica.ble to tbe investment in Cuban Tobacco C~mll)any Inc., based upon the consolidated bala.ce sbeet of Cuban Tobacco Company Inc. and subsidiaries, amounted n~ $fi.790,672,fi9, including intangible assets of $5.234.281, at December 31. 1945. In computirlg Ibe alnounts O~ underlying assets referred to above no cognizance is taken of any income or other taxes that may become payable oil declaration of dividends by domes- tic or foreign subsidi~tries of Ctlban Tobacco Contpany Iilc. The amounts o1 such taxes will be dependent on ~uture dividend policy o[ the companies and upon tax laws and rates applicable in years in which any dividends may be declared. The value o~ the preierred and connnon stocks o~ Cuban Tobacco Company lnc is de pendent solely upon the proportionate pal~ of the value oi the brands, trade marks and good u511 Of its s~bsidiarles. Based upon financial staten~eI~t5 which bare been exanlbled by independent public aecotmt- ants. tim equity in file net assets ot these s~bsidiarles aggregated $2,505,26S.63, including intangible assets of $329,11533. In 1944 the Office of Price Administration instituted an action against the Compmly for treble damages, claiming overcharges amounting In $329,589.g5 by the Company to cer- tahl wholesalers, jobllers and dJstributors The Conlpany understands that the clabll is based llpon the Office of Price Administration's construing a reduction in smwiee ~ees during the period November 1. 1943 to July 1, 1944 for servldng Army and aNavy aetlv- hies as a change in price to these 51bole~tler& jobbers and distributors, Tba acfion is being ct]ntestcd by tile Company and no effect is given thereto in the accompanying financial statements. f 13

It is generally known zhat advertising has played a great part in the development of the leadinff cigarette bral~ds. .~lueh ha~ been ,~aid of expenditures for cigarette advertising, xvlth a resu[tlng impression of extravagant spendiuff. Thi~ impression i~ contrarg to fact. The record prove~ that the anl~tl~t o~ money 3penl on ¢~arette adverti~iu~ is m/ide~t ill re]atlon tn the ~,'l]e~ i'~s/l[Is a~'hiev~d. The a~tached charts (bas~:d ou expenditure~ available ~or coInp~rison), independentIy compiled b3 The Saturda~ ]~eniilg Post, are inchlded wlth thi~ :~-unual ~el~ort. The Directors o~ The American Tol~acco Company /eel that our st~ekholder~ wilI be interested in the in~orma tlon conveyed by th~ charts, The ten-year period visualized, from ~9~4 to 1943, inclusive, x~a~ a period o~ fre~ econollly before ra~c~n- inff of ¢iga~et~e~ was imposed. The~e ehart~, therefore, reflect ~he situation rela~iv~ to ~tcll b~and a~ sht~wn by the fre~ ~x~r~i~,e of public demand. ~rl additioI~ "~o "the Stl-~killg sal~s ~gurc~s and conlparativt: expenditu~ repo~ted and plctur~d, our ~tockholder~ will be particularly interested to l~o~e that ~he advertlslng" expenses ~11o~ n in the cha~t~, tra/l~lated iIltO ~xper~di~llre per tholl~art~ ¢~garett~ ~old, reflect all average advertiaing expense ~or LUCKY STRIKE Cigarettes in ma~azh~e$. newsl~ap~r~ land r~dio tirll~ over lhe ~ell y~ar period, Of only 1~.7 ~ll~ per t ]lou~alld. f 14 " _ •

:J • "~I~ ~I~ERIC2~ TOB2LCCO Co~P2~iwy ~NCO~POR~TZ~ Notice is hereby givcm that the Annual Meeting of ~he Preferred and Common Stockholders of The American Tobacco Company will be held at No. 4.q Park Avenue, Fl=mington, N. J., at two o'clock in the afternoon, Eastern Standard Time, on Wcdnesdxy, April 3, 1946, to eject directors, to consider and vote upon the proposed resolution set forth in the at~acht~t Proxy State~ent, and to transact such other business as zoay properly come before said meeting. The Preferred and Common Stock transfer hooks wlil not dose, but holders of Preferred Stock Rnd of Common Stock to entids them to vote must he of record at the close of btlslness on March 4, 1946, PdCH~ J. BOyI~N, Secretary PROXY STATEMENT The enclosed Proxy is solicited by and on behalf of the Management and is revocable. The outstanding number of each riass of voting s~usifies of the Company is: Proferred 526,997 shares; Common 1,515,993 shar~s. The Preferred stock is entitled to four votes per share. The Common stock is emtifled to one vote per share, Nominees /or Board o] Disector~. Tha Board of Directors consists of seventcen members who are elected to hold oi~ce until the next Annual Meeting or until their successors arc duly elected and quaiili~.¸ It is the intention of the Proxy Committee ta vote at this Annual Meeting for the following nominees, who together constitute the present Board, and who have served as directors ~f the Company since the years stated a~ter their respective names: Nmmo Orphous D. Baxaiys Richard J. Boyfen Jame, 1~ Coon John A. C, rowe Preston L. Fowler C. Huntlcy Gibson Patrick H. Gorman Oco~patiozJ Vies President, The Ar~cxican Tobacco Company of the Orismt, Inc. Secretary, The American Tobacco Company 1929 Vice Presidenl, The American Tobacco Company 1936 Assistant Chief of Mannfecture, The American 1931 Tobacco Company Vice Preside~at, The American Tobacco Company 1941 Branch Manager, The American Toba~o Company 1980 President, The American Tobacco Company of the 1931 Orie~ah Inc. 1 Year Plr~ Elected Director 1940

N~e Paul M. Hahn Hiram P~ Hanm~ FAmund A. Harvey G~orge W. Hill C~orge W. Hill, Jr. Barry L Hi/yard Jmm~ E. Lipsoom.h, Jr. Will/~ H. Ogsbury Fred B. Reu~zr Vmc~t P~o year First Occupation Elected Director Vice Presldent~ The American Tobacco Company 1931 Director o f'Res~a~h, The American Tobacco Company 19~ Ttea~ttrer, "~ American Tobacco Company 1932 President, The A~cJm Tobacco Company I912 Vice president, The Amewiean Tobacco Compauy 1936 Assistant Treasurer, ~ American Tobacco Company 1944 Pr~idemt, Amorie~m Sttppllers, Incorporated 1918 AssistanY Chief of Mantdaeture, The Amt*ican Tobacco 1980 Company Auditor, The American Tobacco Company 1931 ~'ice P~csidenl, The Am~itan Tobacco Cmnpa~ 1927 Of the outstandlng aecurlti~ of the Company at the close of business on February 1, 1946, the Company is hafo~mecl thnt thee no~am~t~ ~-e di~I~ or indi~ctl~ t?ae bencficlal owne~ of securities as ~ollows: /qame Common Common B Freie~ed Orpheus D. Baxalys 540 130 32 Ricbard J, Boylan 101 Jam~ R. Coon 160 50 John .4.. Crowe 187 5 Preston L Fowler 100 C. Hmatley Gih~ou I01 Patrick H. German 201 50 Paul M. Hahn 1405 Hiram R. Ha~mer 100 Edmund A. Harvey i40 40 George W. Hillt 3712 2531 80 G~orge W. Hill, It. 4 1700 200 Har~ L. HiIya~d I00 James E, Lipseomb, Jr. 1200 300 100 Willi~a H. Ogshury 100 50 Fred B. Reut~r 21 160 Viaeent Riggio 3745 40 The aggregate amoutit of remuneration received from the Company and its subsidiaH~, directly or indirectly, on an accrual Lasls, by each person who has acted a! a director of the Company dur- ing the p~.st fiscal year, each person nomi/aated for election as a dLreetor of the Company, saxd each person who has icted ~s ~n o~eer of the Company hut nut as a director and who bus received pay- merits of remunezation totaling more than $20,000 during such fiscal year, is ~et forth in the iolIo~4mg tabulation, which also states the excel, if any, of remuneration o¢¢r the total remnneration received a ALso has contingent beneficial l~ter~ts In certain trust ftmde holdAng 1654 shares Common stock, 200 shares Cerumen B stock, 842 shares Preferred stock, and $1000 principal amount 4~ Bonds of the Company. 2

m for the previous fiscal year by each director, o~cer or nominee receiving total rmnuneratinn of more than $20,000 for sorvlces rendered in 1945: Remuneration Excegs oi Bemuner- Accrued for ation Accrued for Nmme 194.5 1945 owr 1944 Orpheus D. Baxalys $21,333.26 $1,333.26 Richard J. Boylan 33,000.00 None James R. Coon 46,010.80 6,510.80 John A. Crown 45,000.00 None Preston L. Fowler54~844.16 4,844.16 C. Htmtlay Gibson 27,000.00 None Patrlek H. German54,009.C~ None Paul M. Hahn 78,985.52 None ~m IL Hanmer 25,008.00 None Edmund A. Harvey 49,000.00 None - George W. gilI 168,309.20 None George W. Hill. Jr.z 6,628.45 6,620.45 Harry L. HJlyard30,000.00 None Jaraes E. IApscomb, Jr. 120,000.00 None William H. Og~bury 45,000.00 None Fred B. Renter 80,833.34 833.34 Vincent Riggin 78,980.52 None No such director, o0.cer or ~ominee was indebted to th~ Company and its subsidiaries during such fiscal year, other than from uransachons in the ordinary course of bmthess. The aggregate amount of remunermion for such fiscal year, received from the Company and its subsidiaries, direc~y or indirectly, on an accrue! fisds, by all the directors and no.nor8 of the Com- pany as a group, was $005,43&25, which wa~ the equivah~at of about 1/6 of 1~5 of the Company's eonsolidaled net sales. In December, 1945, the Company received refunds of U. S. Income Taxes accrned and charged to expense in 1938 and 1035, and interest thereon, amounting in ~ota] to $652,760.80. Ince~tlve com- pensatlnn paid for those years to the o~c~rs entitled thereto having been reduced by reason of said taxes, there became payable from said refunds addltinnaI incemine compensation for the years 1934 and 1935, mad fu~rest thereon; payments were so made as folfows, inclusive of interest: George W. Hill, $1L274.60; Paul M. Hahn, $6,764.76; Vincent RiFFle, $6,764.76. Renmneratinn ol Employees. The nnmber of mployees of the Company and its subsidiaries (other than nffacers and dire~tora of the Company) who, during the last fts~al year, received from the Company and its eubsldlarie~, re~ntmermion in ¢xogss of $20,000 hut not more than $50,000, a~d the aggregate mount of remuneration paid to the persons in thie group, was: Aggregate Amomal Numbe~ ~r Group 9 $248,390.73 2 Received no remuneration from Company or subsidiaries in 1944, hsing in military serviee at the ri~ne,

The number of employees of the Company ~md its subsidiaries (other than odieers and directors of the Company) who, daring the last fiscal y e~, received from the Company and its subsidiaries, remun~ation in excess of $50,000 but not mo/&~than $100,000, and the aggregate amoum of ~emu- neraBon paid to the persons in this group, was: AggTegat 0 g2m0 unt for Grou~ 0 0 The nnmb~r of emaplayeea of the Company and its subsidiaries (other than o~ieers and directors of the Company) who, during the last fiscal year, received from the Company and its subsidiaries, rmaun~ration in exceas of $100,0001 and the aggregate amount of remtmeration paid to the persons in this group, was: AggTegat e Amount l/amber fceGronp 0 0 .Remuneration of Other persona. The following-named persons (other than directors, ofl~cerJ or employees of the Company) received aggregate remtmeratinn from the Company during th~ last fiscal year in excess of $20,000, for services in the capacities described: Name Amo~mt Capacity Cimdbourne, Wallace, Pashe & Whitesida $133,827.21 General Counsel Robert Montgomery 125:000.00 Attorney Lybrand, Rnss Bros. & Montgomery 81,690.00 Auditors Franelseo & Jaeshus 68,808.06 Engineers & Architects Messr~. Lyl~rand, Ross Bros. & Montgomery have for many years been the independent anditors for the Company, and are appointed by rosolutinn of the Board of Directors. In accordance with the Company's customary practice, a member of the firm of auditors will attend the Annual Meeting and r~sgnnd to questions which may be asked by stockholders. Comments or suggestions by stockholders with regard to the audit are welcomed, as they are with regard to all other matters affecting the Com- pany's interests. Redointlos$ .,t. The Company is infonmed that Lewis D. Gilbert, a record ovmer of 80 shares of Common Stock, whose addr~as is 1t65 Park Avenue, New York, I'/. Y., intends to introduce at the forthcoming Annual Meeting the following resolution (designated herein as Resolution A): "Resolved: That following the Annual Meeelng, a reasonably complete and impartial account of the proceedings be sent to all the stockholders of the corporation." Mr, Gilbert has furnished the following statement setting forth the reasons advanced by him in support of suck proposal: "All stockholders are entitled to know what takes place at the annual meet- ing and this proposal is in line with the policy now being followed by an increasing number of cor- porations. A few exampl~tandard Oil of Now Jersey, General Foods; Standard Brands; General Motors and F. G. Shattuek. 'lhls report should include questions and answers by the management, if of general intmeab and the result of all bellotfing on proposals voted on pursuant to the proxy notice." A slmiinr proposal--"that at all annuM, mt~llngs, complete records shall he take= 'verbatim' during the meeting by a secretary tither in shorthand or by stenotype, and based on this 'verbatim' report, a fair and comprehensive summary be sent to each and every stockholder of the Company within thizey days after the annual meeting, the complete 'verbatim' statement to be sent to any stock- 4 f 7•

holder reqnemtlng same,"--w~ submitted to the stodcholrlers st the 1944 raeetlng and was defeated by 2420341 votes representing approximately 99~ e~ the total vote~ cast. It has been for many years the practice of the Company to have a ~tenographer pre~ent at the Annual Meeting and |o raake a complet~ record of the pz~e~dlngs by stenographic notee, the tran- serlpt of ~vbleh is ~ed with the Secretary in the permanealt records of the Company, where it is open to inspection by any stockholder interested. The Msnagemeat does not sponsor this resolution. It is e~nv~nce3, particuIarly in v~ew of the sto&hol&~s' I)revious rejection of a almiIar Froposal by an overw]lehmng vote, that no u~efi~l pulpo~e in the interest of the general Joody o~ stockhoIders would be served by ils adoption. The Manage.ment urges that you vote against R~oIution A. The Manag~t is not aware of any other matter which is intended to be presente~ for action at the meeting. Flemlngten, N. J. i~ reached by the Lehigh V~l~y Reilroad. Th~ present train schedule, which is subject to Change and should be confirmed, ia as follows: Leave Pennsylvania Station (33rd Street and Seveath Av~uo, New York, I~. X.) 11:05 A.M. Arrive Flemin~ton 12:2~ P.M. Leave Flemington 5:06 P.M. Arrive Pennsylvania Station 6:B5 P.M. Th~ Company will procure raiIroad transportation, f~om I~ew York to FIemlngton and ream, at Company e~pen~e, for any stockhoIder o~ ~cord desirous of at~nding the meeting, on his notifying the S~e~retary in writing, prior to ~Iarch 25) 1~46~ Ihat he wishes sue~ transportatlon obt~dned_ I~ you do not plan to attend, you are ~genfly r~ques~d to e~ecute the enclosed Proxy and mall it to the Comloany promptly. ~;Fer~e of SoF~*q~n. Th~ expense of the solicitation of Pro~i~ for this meeting) ineludir~ " the cost of meilin~) wEl be borne by the Comply. In addition to mailing copie~ of this material to stockhol~rs, the Company will r~quest pe~ao~s who hol~ atoek in ¸their nam~ o~ eustocly o~ in th~ nam~ of nominees for o~hers, to for'~a~d cople~ of ~uch m~r/al ~o those persons for whom they hold stock nf the Company sad to request suthority for the executlon of tho P~oxies. The Company may reimburse such persons for ~helr o~t of pocke~ e~pen~es incurred in connection therewith, ~-hlch e.x~ses aze estimated to be abozz~ $700. To the ~xtent necessary in order to assure sufficient r~pre- sentati~a at the meeting, of~cers and approxiraat~ly 10 rego]ar or speclally engaged employees will request the relui'n of Proxle~ by telet)hone) telegram er in p~r~on~ a~ an estimated ~ost of aJ~o~ $3000. The amount of the e~p~nse to he l~orne J~y the Company ,a~ll depend upon the wlnme of shares represented hy th~ proxies~r~ived romptly in response to thi~ Notlee ef Meeting. I¢ Proxies are not received promptly it m~or the Company to ~end telegraphic soli~Jta- tlon to those stockholders who have no~ responded. The ¢xpenae o~ suc]~ ~elegraphie solicit~tlon would be about $15C¢. Tho $~ockholder~ are urged to send in their Proxlea without delay. Prompt response i~ helpful, and your cooperation will be appreciated.