Tobacco Documents Online

1951

annuaE epor FOR THE YEAR ENDED DECEMBER 31, 1951 WITH CONSOLIDATED BALANCE SHEETS CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS Executive Office 111 FIFTH AVENUE • NEWYORK 3, N. Y.

1951 1950 Net incolne per common share ............. $5.57 Dividends paid per common share ...... 4.00 $7.17 4.00 Net saIes ..... $942,552,034 $873,621,130 Income. before taxes on income 80,410,505 76,724,339 Net income ......... 33,109,669 41,732,716 Dividends paid (preferred and common) 24,675,682 24,675,682 Pcmlon of net income invested in assets used in the buslaess and to provide for debenture sinking fund lequirements ............ 8,433,987 17,057,034 Current assets, December 31 .... 668,233,871 593,026,307 Current liabilities, December 31 212,177,930 133.373,663 Net working capltal, December 31 .... 456,055,941 459,652,644 Number of stockholders at December 31: Common ....... 66,693 Preferred ...................... 8,324 64,565 8,555

NOTICE OF MEETING Flemington, N. J., March I, 1952 NOTICE I5 HEREBY GIVEN that the Atnma] Meeting of the Preferred and Common Stockholder~ of TaE A~rEmC~N TOBACCO COMPANY will hc held at No. 34 Court Street, Plemlnglon, New Jersey, at one-dfirty o'clock in the aflernoon (Eastern Standard Time) oll Wednesday, April 2. 1952, for the following purposes: (1) to elect Directors; (2) to consider aad vote upon a propr, sal (designated Proposal A and set forth in the following proxy statement) made by three stockholders; and (3) to transact such other business as may properly come before the meeting. The Preferred and Common Stock transfer hooks will not be closed, but holders of Preferred Slock and Common Stock to be entitled to vote must be holders of record at tile close of business on March 3, 1952. JoRt~ W. HA~LO~, Secretary SPECIAL NOTICE Holders of what was formerly Common Stock B who still hold their Common Stock B cerfificate~ are reminded thah by amendment of the Charter of the Company ~n Aprg 8, 1948. each share of Common Stock B outstanding was changed into one share of Common Stock, with the voting rights of Common Sto~, namely: One vote per share.

PROXY STATEMENT "fhe enclosed proxy is sdicited by and ~n behalf of the Management and is re,~ocable in writing. Proxies in the form enclosed, properly executed b~ stockholders and duly tetra'ned to t~e Management and not revoked, wiB be voted and, if a choice be specified with respect to matters to he acted upon, wiB he voted in accordance with such specifications. Tile outstanding number of each class of ~oting securities cf the Company is: Preferred 526,997 shares; Common 5,378,425 shares, The Preferred Stock is entitled to four ~mes per share. Tile Common Stock is endtled to one vote per share. ELECTION OF DIRECTORS The Board of Directors consists of seventeen members who are elected to hold dIice unti! the next Annual Meeting or until their successors are duly elected and qualified. Jt is fire intention of the Proxy Committee to vote at this Ammal Meeting for the nomlnee~ named below. These nominees constitute the present Board and have served as directors of tile Company for the periods comnmncing with the dates set alter their respective names. The Company is informed that these nomfilees were dh'ectly or indirectly the beneficial owners ef rmtstandlng securities of the Cmnpany at the close of business on February 1, 1952, as set froth a±ter their respective names. Year First Natae Principal Occupation I~lected Director Orpheus D. Baxalvs Vice-President, The American Tobacco 1940 Company o1 the Orienb Inc. Altred F. Boa,'den Richard J. Boylan Douglas W. Brashaar Tl~omas P. Connors James R. Coon John A. Crou~ John S. Dewd Preston L Fowler Paul M. Hahn Hiram Pt. Haxllner Edmund A. Harwy Harry L. Hilyard John R. HnLchings, Jr. A. LeRoy Janson William H Ogsbury l~xe~ P. Stticklaad C~unnon prefeI~ed 884 62 Assistant to tim President, The American 1951 ?.1~5 Tobaceo Company Vice-President, The American Tobaoce 1929 1,745 315 Company Vice President. American Suppliers, 1948 100 Incorporated Director of Trnl~e, The American 1946 145 Tobacsu Company glce,Pre~ident, The Ameriean Tobacco 1936 652 50 Company Vice.President The American Tobacco 1931 1,00 105 Company Executive Vice President, American 1946 300 Suppliers, Incorporated Vice.President, Tbe American Tobacco 1941 600 100 Company President, The American Tobacco 1931 2,086 Company Director of Researeh~ The American 1933 120 Tobacco Csmpany Vice-President, The American Tobacco 1932 500 43 Company Treasurer, The American Tobacco 1944 120 Company Vice-Presldent, American Supplierz, 1951 102 Incorporated Auditor, Tixe American Tobacco I948 265 Company Assistant Chle~ of ManulEacture, The 19313 120 50 American Tobacco Company President, American Suppliers, 1946 320 Incorporated 2

John R. Hutchings, Jr. ~vas elected a director of the Company on May 29, 1951, to fib tbe vacancy created by the death of James E. Lipseomb, Jr. Mr. Hutehings is a Vice-President and director of American Suppliers, Incorporated, the Company's leaf buying subsidiary, and was tor approximately 25 years prior to his election a supervisor ~f kobacco leaf' buyers of that subsidiary. Ahhough the Management does not conteraplate the possibility, in the event any nominee is not a candidate ~r is unable to serve as a director at the time nf the elecgon, it is intended that the proxies will he voted for any nominee who shall he desigmlred by the present Board of Directors to fill such vacancy. Ie.formation regarding the remunexation of directors is hereinafter set forth under the caption "Remuneration". Proposal A The Company is inf~rmed that Lewis D. Gilbert, whose address is 1165 Park Avenue, New York 28, New York, John J. Gilbert, whose address is 1165 Park Avenue, New York 28, New York, and John Campbell Henry, whose address is 1088 Park Avenue, New York, New York, stockholders, intend to introduce at the forthcoming Annual Meeting the following resolution (designated herein as Proposal A) : "RzSOLWD: Tbat the stocltholders hereby request the Board of Directors to take appropriate steps to submit to stockholders an amendmel~t to the Certificate of Incorporation providing for cumu- lative voting, that is to say that at all elections of directors, the stockholders shall have the right of cumulaBve voting, which means each shareholder shaff be entided to as many w~tes as shall equal the mnuber of votes which he would be eutitled to cast for the election of directors with respect to his shares of stock multiplied by the nunther of directors to be elected and he may cast all of such voles for a single director or may distribute them among the nunther t~ be voted for, or any two or more of them as he may see fit." The proposers of this resolutinn, Messrs. Gilbert, Gilbert and Henry, have furnished the following statement setting forth the reasons advanced by them in support of their proposal: "At present all directors of Amerlean Tobacco are employees the public stockholders are completely unrepresented, a eonditinn we drink should be corrected. Cumulative voting, if adopted, would enable public shareholders to get Board representation with greater ease. Some 246,407 votes were cast in its favor last yea~mif you agree with us, please mark your ballot FOR. Shareholders desiring further information as to the hnportance oi the right to vote cumulatively at annual meetings should censLth 'Cumulative Voting for Directors' by Prcff. Charles M. Williams, published in 195t by Harvard Business School, Boston, Mass." The same proposers introduced substantially identical proposals at the 1949, 1950 and 1951 Annual 3Ieetings. Each ef these proposals was overwhelmingly rejected by the stockholders. At the 1951 Annual Meeting, stockholders east 5,218,021 votes opposed to this proposal The long-continued record of successful ¢peratlon of the Company's business by directors giving their entire time and effort to tile service of the Company and its subsidiaries indicates, in the opinion of the Management, that the directors have managed the business in the interest of all the stockholders and that it would not be in the interest of the Company to initiate this amendment. The Management recommends that you vote AGAINST Proposal d. The Management is not aware at the date hereof of any o!her matter which is a proper subject for action that is intended to bc presented at this meeting. 3

REMUNERATION Remuneration o[ Directors and O~cers. There is set forth in the follmvlng tabuhfion the aggregate remuncration, on an accrual basis, directly or thdirectly paid cr set aside by the Company and its sub- sidiaries to, or for the benefit of, the following persons for services in all capacities while acting as directors or oflleers of the Compally during its last fiscal year: each person who was a director of the Company at any time during such fiscal year am] whose aggregate remuneration, exclusive of pension, retirement and similar payments, exceeded $25,000; each person who was one cf the three hlghest-paid officers of the Company during such fiscal year and whose aggreggte remuneration, exclusive of pension, retlremcnt and similar pa)nmems, exceeded $25,000; and all per~o~xs, a~ a group, who were directors or officers of file CompanF at any time duzing such fiscal year. WhBre the total remuneration shown in Columns (3) and (4) exceeds by more than ten per cent. the corresponding total remuneration for the preceding fisca~ year, the excess is stated in Column (6). E~timaLed annual retirement bene6ts to the same inclivlduals at normal retirement date under the Retircmcal Plan for emp]oyees adopted by the stochho]ders at the 1949 Annual Meeting are stated ill Colmnn (7). (D I~ ~me of indiv~dval or identity of group Orpt~cns D. Baxalys Alfrcd F, Bowden Richard J. Boylan Dougtas W. Brashcar Thomas P. Cotmor~ James R. Coon(e) John A. Crowe(e) John S. Dowd Preston L, Fowler(e) (2) Capae~ie~ in which (3) remulleratlon ~a~ ~ec~ived ~a[~r ic~ Vi~e-Pre~nt and Man- $50,(~00 aging Director, The AmemieanToba¢¢oCom- pany of the Orient, Inc. (a) Assistant to the Pr~ident, 25,972.21 (b) The .gm~'iean Tobacco Company ¥i~u-President a~d Dircc. 50,000 tot of Purehase~, The Am~ricanTobacco Com- pany Vice~re~klent, American 40,000 Suppliers, ineo~orated (a) ; General Manager of St emmerics Directvr of Tra~c, The 33,000 ArnerlcanToSacco Com- pany Vice~res~nt aad Comp- 50,000 tre]Jer, The Amebean Tobacco Company Viee-Pr~sldent mad As. 5g,000 sis~t Chief of Manu- facture, The American Tobacco Company Vi~-P~e~ide~ ana Execn- 55,833.35 tire Vice.President, Am. erican gu~i~rs, Incn¢- potato] (a) Vice.President and Chief 50,000 of Manufacture, The Americ~Tobaeco Corn- pany (a) A£filiated company engaged in purchase and handling o[ lea[ tubazcv, b) P, gpresenls salary earned ~nly after election as a director April 4, 1951; total salary was $32,000 for 1950 and $35,~0 or ~951. ~¢) ~so o~eer o[ affaliated company or companies. 4 (7) Estimated (5) annual Applicable (6) retir~n~ent porfienof Excess benefit (4) group over ataormal pardeipafion insnraneo pre~lous re:~ement in profits premium year date $59.16 $16,293 43,18 12,500 $92,495.47 59.16 17,000 59.[6 Id~614 59.16 11,605 92,405,47 59.16 92,495,47 59.16 59.16 $5~833.35 92,495.47 59.16 17.0~0 17,000 18,013 14,846

If) (2) ~4) Nam~ o[ i~d]vidua[ Capacitie~ ~n which (3) Participation or id~tlIit7 oJ g~up lemuuerati0n was ~cei~ed S~i~ ~n pTo~t~ Paul M. Hahnlc) Presi~m, The American $120,000 $115,619.34 Tobacco Company; Presi~l, American CigareF¢ and Cigar Company Hiram R. IIanmer Director of Research, The 37,~0 Amerlca~iTobacco Com- pany Edmund A. Harveyld) Vice-Pr~idcnt in Charge 50,000 92,49o.47 ol Sales, The American Tobacco Company Barry L. Hilyard(c) Treasurer, The /unerlcan 50,000 Tobacco Company A. LeRoy JansonAuditor, The American 45,000 Tobacco Company ~amesE.Lipscomb, Jr.(e) President, American Sup- 45~000 pl~5, laco~orated(al Wfil~am H O~bury Assistant Chief of Manu- 50,000 lactate, The American Tobacco Company James P. Strickla1~d ~ce-Presidcnt and Presi- 64,~3.35 ~ Am~rlc~ Sup. pller~. Inco~orated (a) Dircctols and O~cers Directors and Officers as 911,301.66 578,096.69 1,049.40 as a group a group 17) Estimated {5) annual AppXicaMe (6) retirement p0r ti011 of ~xc~s~ ~ene~t group over at n~rmal ~ns~rance pre~ious retirement prcmlum yea~ d~t~ $ 59.16 $23,(]00 59.16 13,968 59.16 $14.15947 17,000 59.16 12,323 59.I6 5,00G 15,699 23.12 59.16 17,00C) 59.16 14,583.35 16,506 AffiliaLed company engaged in purchase aod handling o~ leaf ~obacco. Also of~cer of affiliated ¢ontparty or ¢ompRn~es, /d} Fleeted a Vice.president April 7, I9~0 The amovllt reporLed ~n (]~]~mn !6) ~s accounted for by participation as ~ Y~ce pre~idellt for o~ei 8 ~0ntl]~ o~ 1950 as agtlinsi pardcipatlrm for the ¢ntlre yeal ]9~. (e) Deceased :~lay 15, I951. The amounts stated in Column (4) above were accruet] as incentive compensation (based on amount of Compan'~" profits), under Article XII of the By-Laws, as amended by votc of the stockholders at the 1951 Alaaual Meeting. No fees or commissions were paid to or for the benefit of any of the indffilduals listed above. There were no pension, *efirement or similar" paymen s o or for the benefit of directors artd officers nf the Company during its last fiscal year. Tim Retirement Plan for employees adopted by vote of the stockbolders at the 1949 Annual Meeting covers approxlmamIy 19,100 regular full-time emph~yees of the Company and its subsidiaries. The Company has nmintained slncc October 1, 1946 a group life insurance plan which covers all regu- lar fuil-time employees of the Company and of i s consol da ed American subsidiaries and certain employees of uther subsidiaries, the maximum amount of insurance fimreunder for any employee being limited to $I0,000. The amount of group l~fe insurance provided for each employee is determined by h s basic annual pay. Each of the officers and directors was insured for $10,000 under such policy. The cos/of the insurance is payable ratably by the Company and such subsidiaries. The total number of employees insured under the plan on January I, 1952 was approximately 19,000. The aggregate amount of remuneration for the fiscal year 1951, received from the Company and its subsidiaries directly or indirectly, on an accrual ba~is, by all he directors and officers of the Company as a group, was approximately sixteen one-hundredths of 1% of the Company's consolidated net sales. 6

MISCELLANEOUS Any stockbolder making written request therefor to the Secretary of the Company will be furnished a summary of the Annual Meeting that will he prepared after the meeting has been held. Messrs. Lybrand, Ross Bros. & Montgomery ha~e for many years been the independent auditors for thr Company, and are appointed by resolution of the Board of Directors. In accordance with the Company's customary practice, a member of tbe firm of auditors will attend the Annual Meeting and respond to questions which may he asked by stockholders. Comments or suggestlcns by stoclsholders with regard to the audit are welcomed, as they are with regard to all other matters affecting the Company's interests. Flemington, N. J., is reached by the Lehigh Valley Railroad. The present train schedule, which is subject to change and should be confirmed, is as follows: Leave Pennsylvania Station (33ed Street and Seventh Avenue, New York, N. Y.) 10:55 A. M. Arrive Flemington Junction 12:03 P. M. Leave Flernington Junction 5:16 P. M. Arrive Pennsylvania Station 6:35 P. M. The Company will procure transportation from New York tc Flemington by railr~ad and leturn by railroad or, i[ expressly requested, retur~* b2 bus, at Company expense for any stockholder of record desirous of attending the meeling, on his notifying the Secretary in writing prior to Marsh 31, 1952, that he wishes stJeh transportation obtained. If you do not plan to attend, you are urgently requested to execute the enclosed proxy and mall it to the Company promptly. Expense of Solicitation. The expense of the solicitation of proxies for finis meeting, including the cost of mailing, will be borne by the Company. In addition to mail ffig copies of this material to stoclsholders, the Company will request persotls edlo hold stock in their name or custody or in the name of nominees for others, to forward copies of such material to tho~ person~ for whom they hold stock of the Company and to request authority for the execution of the p~oxies. The Company may reimburse such persons for their out-of-pocket expenses and clerical charges in connection therewith, which expenses urn estimated to he about 82,500. To the extent necessary in order to assure sufficient representation at the meeting, officers a/13 some regular employees of file Company and approximately 6 employees of Philip G. Cameron Coral- party will request the retnrn of proxies by telephone, telegram or in person, at an estimated cost of about S14,000. The amount of the expense to be borne by the Company will depend upon the volume of shares represented by the proxies received promptly in response to the Notice of Meeting. If proxies are not received promptly, it may be neceasary for the Company to send teIcgrapfiie solicitation to those stockholders who have not responded. The expense of such telegraphic solieitalion would be about $2,500. Stockholders who do not intend to he present at the Meeting arc urged to send in their Proxies without delay'. Prompt response is helpful, and your cooperat;cn will be appreciated. February 15, 1952.

Fehruary 8, 1952 To our STOCKHOLDERS: In the following pages your Management reports on the operation and resu]ts of file business of your Company, includlng its consolidated subsldmries, during the year 1951. Economic developments during the past year have affected your Company, as well as American industry generally. The impact of higher costs, higher taxes and frozen manufacturers' prices is directly reflected in the results of operations. Some significant developments with respect to your Company durlng 1951 were: 1. Dollar and unit sales of your Company were the largest in hs history aed tile largest in the tobacco induslry. 2. Income ]Jeforc taxes increased $3,686,] 56 to $80,410,505. a new h~gfi level for the Company. 3. Net income decreased $8,623,047 to $33,109,669 due to higher costs, higher taxes and ~rozen manufacturers' prices. 4. The Federal excise tax on cigarettes was increased on November 1, 19fil, from $3.50 per thousand to $4.00 per thousand (eight cents per package) and our se?ling prices were increased correspondingly. No other changes in tho prices of our cigarettes were made dmlng the year. 5. Your Management is making every effort to obtain permission f~om the Office of Price Stabilization It) increase the prices of cigarettes ~n order to improve the low margin of profit on sales which exists ~n the cigarette industry. 6. Becausv of larger sales volmne, hmreased invmm)ries necessary for the maintenance of this larger volume, the continued rise in the cosl of leaf tohacco and the gt~aler investment required for revenue slumps, your Management has taken steps to raise additional wo*king capital.

SALES ,~ The Company's total dollar and unit sales in 1951 were the largest in its history and in the industry. Dollar volume increased $70,930,904 to $942,552,034. Sales of the Company's cigarette> in units as well as in dollars increased sub- stantially, reaching a new sales peak for tile Cmnpany and continuing by an increased margin to be the largest in the nidnstry. Most of Jhe increase in dollar volume resulted from the increase in unit sales. The Company's increase in output of eigarenes is believed to be equal to two- thirds of the combined increase of all the other companies in the industry. During the year significant progress was made toward reversing the sales curve of LUCKY STRIKE Cigarettes. The downward trend of the past several years was checked materially. Sales of LUCKY STRIKE Cigarettes in 1951 were' approximately twice as large as in prewar 1940. Sales of PALL MALL and HERBERT TAREYTON Cigarettes continued to increase at rates far above the industry average. PALL MALL is, by a wide margin, the largest-selling king-size cigarette in America, while HERBERT TAREYTON is the second largest-selling king-slze cigarette. ~' The Company currenlly enjoys the advantageous position of having three cigarette brands- LUCKY STRIKE, PALL MALL and HERBERT TAREYTON- among the large-selling brands of the industry, enntrihutlng to its position of leadership in the cigarette fieId. Sales of our cigar bram]s including LA CORONA, ANTONIO y CLEOPATRA and ROI TAN- also increased substantially. Each of these brands is the leader in its respective class. Sales of the Company's smoking tobacco brands decreased moderately in ]951, at about the same rate as that indleated for the industry as a whole. EARNINGS AND TAXES Consolidated net income for ]951 was $8,623,047 lower titan in ]950. While this result was in part due to increases in the cost of leaf tobacco, wages and other materials and services, the increase in Federal taxes on the Company's inctmm was the principal cause of the reduction i*~ net earnings. Taxes on income totaled $47,738,008, a new all-tlme high, and were equivalent to $8.88 per common share compared with earnings of $5.57 per share after taxes. In 1951, taxes on income and excise taxes on our products accounted for 52% of the total receipts from sales. Taxes exceeded the combined total for leaf tobacco, wages, other costs and dividends to stockholders.

O 0 DtTIDEND$ During 1951, dividends of $4..00 per share were paid on the common stock, consisting of four regular quarterly dividends of seventy-five cents each and an extra dividend of $1.00. The 186th consecutive connnon dividend, consisting of a regular dividend of seventy-five cents and an extra dividend of $1.00 per share, will be mailed to stockholders on March 3, 1952. CIGARETTE PBICES The trend in the manufacturer's price of cigarettes since 1940 represents a marked exception to the extensive price inflation that has taken place in our national econmny. The mannfacturer's price of cigarettes after discounts and excise taxes is only 42% higher today than in prewar 1940. while the general price level* has more than doubled in the same period. In other words, the increase in the manufacturer's prb:e of cigarettes is less than half the increase in the general price level. Prices of leaf tobacco have also increased at a far greater rate than the manufacturer's price of elgarettes. During the current buying season (through January 31, 1952), the average prices paid for the Company's cigarette grades of Flue-cured and Burley tobacco were 155~ and 150~, respectively, more than the prices paid for these grades in 1940. Except for a slight increase to cover a corresponding rise in excise taxes in 1942, no other increase in cigarette prices was permitted by the Government during the war years. The inevitable result of wartime price control, together with higher leaf tobacco costs and increased taxes, was a severe reduction in tile manufacturer's rnargln of prufit. In the five-year period immediately preceding World War lI, the average net profit of the Company was about 10~. of sales while durieg /he five war years, 1941 through 1945, this ratio was about 4.5% --a drop of more than 50~-. Although the manufacturer's price of cigarettes has been increased on sex,era1 occasions since the end of World War II, these increases only partially offset the continued rise in the e~st of leaf tobacco, taxes and other operating costs. Price controls have again been imposed, with the result that for over a year your Company has been unable to increase tim price of its cigarettes to offset its higher costs, notwithstanding the fact that your Company's net profits in relation to sales are considerably below normal. Your Management is making every effort to obtain permission from the Office of Price Stabilization to increase the price of cigarettes. INVENTORIES The Company's investment in leaf tobacco, manu factu red stock, operating supplies, etc., at December 31, 1951, was higher by $61,864,328 than at the end of 1950. An increase in the physical quantity of our inventories of leaf tobacco and in manu- Bureau of Labor Statistics Wholesale Price Index. 5

faelnred stock accounted for most of this increase, although the higher prices paid for tohaweo contributed, to s.me extent, to the larger dollar value of this inventory. The increase hi the quantity of Jeaf tobacco inventories was occasioned by the necessity for maintaining adequate quantities of properly-aged tobacco conslstent with the increased volume of the Company's business. Bank loans increased from $7g,000,0~ at December 31, 1950, to $140.000,000 at the e~d of 1951. Cash in banks and on band increased approximately $10,O00,000. It is estimated that there will be some additional increase in bank loans before March gl, after whidx date our hank loans ~ould decrease until the beginning of the next leaf tobacco purchasing season. During 1951, funded debt was reduced $11,439,250 through the operation of Sinking Funds and the retit'emeat of $831,250 of Four Per Cent Pnnds which matured and were paid on August 1, 195l. In addition to the effect that ~axes have upon net earnings, the Company must provide the necessary working eapltal to pay substantially larger portions of its Federal income and excess profits taxes earlier in the year t]mit was formerly required. This acceleration in the payment of taxes naturally affects the peaks in the amount of funds the CompaJ~y mu$1 borrow calJa'enl]y aero/n hacks. Tbe Comp~aly also must provide working capita] for the Federal excise tax stamps which are affaxed to its products. It is estimated that the Company has an average of at least $50,000,000 invested in such stamps at all times. This amourtt represents the value of Federal axclse tax stamps on hand, attached to finished products or inch:deal in l~f~aJd billings to our customers. Because of the lined for increased wo,zkJng capital occasioned by the expanding volume of the C, ompany's business, higher taxes and larger leaf tobacco inventories, your sManag~ment has eonsldered it advisable to convert seine of its short-term bank loans into longer-term obligations, and has :aegotlated for the sale to the publ~e of $50,000,000 of long-term debentures. It is planned to have such an issue under~ written by a group of investment bankers. The net proceeds of such sale ¢f deben- tures will be used to reduce the Company's bank loans. Your Mmaagemeat is of the opinion that a substantial portion of the additional working capital now re(fuired in the business will be needed permanently and, there. fore, plates to obtain ~n additional amount of permanent capital through the og~ring of common shares to the holders of common stock, INCENTIVF. CO]IpE~SATIOIq At the Annual Meeting held on April 4~ 1951, the stockholders approved die proposal initiated by your Management for a subst,lntia] reduction in the rate of t. 6

® 0 officers' incentive compensation under Article XII of the By-Laws. Incentive compen- sation for the year 1950 was thus reduced by approximately $500,000. Total incentive eompensalion paid fur the year 1951 was $131,290 less than for the year 1950. ]~ERSONNEL In the dealfi of James E. Lipscomb, Jr., on May 15, 1951, the Company lost a valued friend and Director. Mr. Lipscomb, who had been with the Company since 1902 and who had been a Director slnee 1918, was for many years President of American Suppliers, Incorporated, the Company's domestic leaf tobacco buying organization, and was an outstanding figure in the industry. Mr. James F. Striekland and Mr. John S. Dowd, hoth of whom had been elosely associated with Mr. Lipseomb for many ),ears, were elected President and Executive Vice President, respectively, of American SuppBers, Incorporated. Both Mr. Str~ekland and Mr. Dowd have been members of the Company's Board of Directors sfilee 1946. Mr. John R. Hutchings, Jr., Vice President of American Suppliers, Incorporated, was elected to the Board of Directors on May 29, ]951, to fill the vacancy created by the death of Mr. Lipseomb. STOCKItlOLDEI[I5~ ANNIJ~.L )IEF, TING The Annual Meeting of stockholders will be held on Wednesday, April 2, 1952. Formal notice of this [Vleeting, together with a proxy and proxy s atemen , is entdosed with this report. On behalf of the Board of Directors, I should like to express our apprceJaBon for the cooperation of our customers and employees and for the continued interest of the Company's stockholders th the affairs of our Company as evidenced by the numerous letters 1 have received during file past year. 1 am always glad to hear from the stockholders and to dis~:uss with them the affairs of our Company in which we are all interested. PAUL M. HAHN President 7

1951 OPERATIONS AT A GLANCE THIS IS HOW IT WAS USED OR SET ASIDE: 52% FOR 28% FOp b 1% FOR BOND AND BANK INTBREST 3% FOR DIVIDENDS TO STOCKHOLDERS 1 o/~ FOR $8,434,000

~" '~¢ Company and all wholly owlted domestle snhsidlarles except The American Fro" years ended December 31 ~ Tobacco Company of the Orlent~ ]n¢, @ 1951 ...... $042,552,034 195o NET SALES $871,621,130 Cost of sale~, ~ellil~g, general and administrative expenses . 853,399.472 785,004,416 OPERATING PROFIT ..... 89,152,562 86,616,714 Dividsnds and ittterest from unconsolidated subsldiartes (Note 1) ............. 594,392 763,731 Other income ................ 265,732 $ 90,012686 278.087 $ 87.658.532 Interest and related charges ......... 8.984,249 8.796,848 P~'~vision for reservea against investments in seeuritle~ ........................... 1,484,3~)4 Portion of net income of Amerlaan Cigarette and Cigar Corapany applicable to minor- ity interest ................... 191i656 2~0,054 Other expenses and losses ........... 426,276 9,602,181 422,98? 10,934,193 Income, before taxes en ~neome ........... 80,410,505 76,?24,339 Federal and slate taxcs on inconae (Note 2) 47.738,~0D 37,454.000 32,672,505 39,270,339 Refund and adjnslment of prior years' fed. eral and slate taxe~ ~nciudlng interest./ess related expensce ..................... 437,164 2.462,377 NET INCOME ................ 33,109,669 41,732,716 Retained earnings, beginning of year ....... 104,320,087 141,362,483 37 429.756 183,~95,199 Write.off of brands, trademarks, patents, good will, etc ............. 54,099.430 Cash dividends: Common stock, $4 per share .... 21,513,700 21,513~700 Preferred stock, $6 per share 3,161,982 24.675,682 3,161,982 78,775.112 Retair~ed earnings, end of year (Note 3) $112,754,074 $104,320,087 Depreciation provided and charged to casts and expenses amnuttted to $2,996,883 in 1951 and $2,901,844 in 1950. St

Ineludlng Amerie~tl Clgaret~e and Ciga¢ Company and all whony owned domestic subsldlarie~ except ThQ Anler~¢an Tobacco Coil[pan) of the Ori~I~ ]tic. As of December 31 ASSETS Demand deposits in banks and cash on hand ...... Accounts receivable, customers ..................... Miscellaneous accounts receivable • ............. Lea obacco manufa¢ u ed sock opera ng supp cs: etc. at averag~ cost Cash on deposit with ~inking fund tr~L~es fox redemption of debentures ~ec~ivablcs from unc0nsoI/dated stlb~idlarles ...... Total ~urrenf a~ct$ ................. Receivables from mlconsolidatcd subsidiaries ( 1950 in¢l~de~ $581.214 from F ench sub~ d ary vhlch subs diary ~a~ ~old in 1951 ) ......... Investments in sect~'ities of uncoI~olidatcd subs~diarles, at araount~ not in excess of co~t (includes $5,400,000 n who y o~ ed Br s~ sub d art (Xole 4) .............................. Insu¥~tnc~ deposi~ an¢~ mis~]lall~OR5 ~rtve~ent8 Real estate, roach nery, fixtures, e c, a cost~ less alh~wanc¢ lot dcpr eciati~n, 1951, $3~,732,657; 1950, $28.515,92:~ ................ Prepaid expense~ and d¢~rred ¢h~rge~ .......... Brands. trade-marks, pat~n~, good will, etc .......... $ 31,992,252 $ 22.156,721 40,571.157 36,783.55C 868,949 762,946 59~,543,551 532,679,223 1,000 560,073 256,962 83,794 658,233,871 593,026,307 4,400,000 2,881,214 11,704,285 12,848,011 2,320,259 1,9/9,786 dA~257~672 43,746,795 3,573,877 2,983,342 1 1 $734,479,975 $657,405~457 fD

LIABILITIES 195~ Notes payable to banks ............ $149,000,000 Acco n slayabe ......... Dixidend on prefelred ~to~k for quarter ended December 31 Accrued taxes .... Other accrued expenses ..................................... Debentures to be redeemed through sinkin2 fund operations /Note 5) Four per eenl bund~ tnaturin2 August 1, ~9dI Pa) ables to uneonselidat ed subsidiaries ..... Total current liabilities ....................... Ihree per cent debentures (Note 5) Minority interest in American Cigarette and Cigar Company Ds._~o $ 73,200,000 7,255,590 5,803,456 790,496 79~),496 50,797,675 39,941,975 3,6~8,650 2.8C~8,964 9,~3 6,[}121 9,891,~00 -- 83L250 269,519 301,822 212,177~930 133,373,663 205.430~000 215.653,000 417,607,930 349,026,663 1,046.290 987,026 't CAPITAL Capital stock (Note 6) : Preferred, six per cent cumulative, par value $100 per share .... Common, par value 325 per share ............ Excess ul net proceeds lronl sale ni common stock over par value Retashed earnings (Note 3) Less. Tr~sury stock, aL cost (93,713 shares of common stock) Total capital and retained earning~, less treasury stock 52,699,700 52.699,700 136~803,450 136,803,450 20~275,591 20,575,591 210~078,741. 210,078,741 112,754,074 204,320,087 322,832,812 314,398,328 7.(107,050 7,007,060 315.825,755 307,391,768 $734,479,975 $657,402,427 |1

_ " " _)K,'tffflfc ,fll ;Ji, r2 ,ll, cJ D / , / I . • J -j//f"/ETd, ff;/lyf" 4~ 1. The equity in the earnings oI uneonsolldated '~ubsitharie~ amounted in 81,938,804 and $ .711,406 for 1951 and 1956, respectivdy. 2. Federal and stat~ taxel on income comprise: ]951 lgSO Federal income ................. $40,008,600 $31,769,600 FeJeral wxce~s profits .............. 5,650,000 2,7~3,fi06 State income ............. 2,686,006 2,982,00~ $47,738,060 $37,454,660 3. Under the provisions nt the indenture relating to the Twenty Ytar 3~,~ D¢bentures, due January 1, 1968, ~ash divld~ds declared on common stock and payments made. in purehaslng shares of any claus ot the Company's stock subaeqncnt to December 31, 1947, may not exceed the aggregate of $15,OfKI,000 and eonsalldate~ net income earned subsequent to December 31, 1947, lesB dividends pald on preferred ~tack. At Deecmber 31, 1951, apProxlmatek" $82,006,009 of retained earnings was fr~e of this restriction. 4. Tfie net tangible a~ats allplieablu to the investinent iII nnconsolldated sub~fidiarles at De~ember 31, 1951, amounted to $~5,971,259, indudlng $8,477,°~!7 net assets of the British subsidiary translated int~ dollarl at appropriate rate* of exchange. 5. Three per cct~t debentures ou~standiag El December 31, 1951, comprlse: Prluulpal Amount Redeemable Redeemable Within After One Year* Dec. 3L 1952 Twenty ),eRr, due April l~ 1962 ................ $$,390,01~1 $ 66,6Z9. ~06 Twenty year, due January 1, 1968 .................. 8,000,006 63,000,006 Twenty-five year, due October 15, 1969 ............... 8,058,000 75,8()8,600 $0,45~,000 $205,4~0.000 Eslllnatcd p/i~ipal amount to be redeemed dltough sinking Iund operallon~ at prltles as provided b~ lhe inde~lar~, 6. Capita[ stoefi at Deceraber $1,1951, compri~ea: Shaxes l~ Cg, mp~y~ Aathorl~d l~ucd Treasuly Preferred ...................................... 540,106 596,997 Nnn~ Common ................................. 10,600,000 5,47-9,138 93,713 12

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For )'ears ended December 31 195_! NET SALES .......... $952,552 Cost of sale~ ........... 853,399 OPERATING PROFIT 89,153 Other irtcoln~, ]eLN~ other expens~ Interest, discount and premium (In Thou~ds) 195__0 1949 194~ 1947 $871,621 $858,996 $873.467 $819,631 785,004 775,721 794,127 757.376 86,617 83,275 79,348 62,255 242 1,095~ 62 100~ 685 89.395 85,522 83,337 79.240 62,940 8.9~14 8,797 9,010 8.716 7=556 Income betore laxes on income 80,411 Taxes on mcome 47,738 32,673 Prior ~cars~ tax adjustments, net437 76,725 7~,827 70.524 55,584 37,454 30,361 28,352 22,445 39,271 43,966 42,172 33,139 2,462 1.708 1.740 706 NET INCOME .............. 33,110 41.733 45.675 4.3.912 33,815 DIVIDI~NDS PAID: Pre[erred 3,168 Common .......................... 21,514 Portion of net income invested in assets used in the business and to provide for debenture sinking fund requlrcrmn~s • Deduction. 3,162 3,162 3,162 3,162 21,514 21,514 20,169 17,704 24,676 24,676 24,676 23.33 20,855 $ 8,434 $ 17~057 $ 20,999 $ 213,581 $ 12,979 T4 roll

~l ) "T As of December 31 ASSETS 195~ Cash ..... $ 31,992 Accounts receivable 40,571 Inventories ............ 594,546 Other current a~cts 1,127 Total current assets 668,234 Investments in unconsolidated ~ubsidiarles 11,704 Other receivables and investments 6,720 Plant and equipment net ~ Prepaid expend, e~c. 3,574 Brands. lFa~ marks, ~c .... Total assets ..... $734,480 (In 'thousands) 1950 1949 1948 1947 $ 22,157 $ 17,949 $ 16,176 $ 19,505 3~783 33,128 36,548 35,130 532.670 531.550 514,908 483~133 1,407 1,127 201 1G4 593,026 583,762 557,083 537,372 12,848 1L080 14.446 14,556 4,801 5,013 4,873 3.910 43.747 43,507 41.859 32,847 2,983 3,345 3,515 3,461 -- 54.099 57,099 54,~)99 $657,405 $711=t,606 $686,675 $646.754 LIABILITIES AND CAPITAL Notes pa! able ........ 5140,000 Accou~s payable ................. 7,250 Accrued taxes .................50,790 Funded debt due within one year~k56 Other current liabilities ............... 4,668 To[a1 current liabilities 212,178 Funded dcht ...................205,430 5Iinor~y interest .................. 1,044 Capital .............. 210,079 Retained earnings ............... 112,754 Treasury Hock (deduction) (7,007) Total llabllit~cs and capital $734,480 $ 73,000 $ 80,000 $ 72,000 $122,500 5.808 4,265 6~517 9fl43 39~042 34,900 34,940 30,323 10,722 9,694 9,211 6,057 3,901 4.,067 3,710 4,649 133,373 132.932 126.3~7 172,577 215,653 226,375 236.069 170,608 987 865 784 715 210,079 210,079 210,079 210,~79 104,320 141,362 120,363 99,782 (7,007) (7,007) (7,007} (7,007) $657,405 $704,5( 6 $686,675 $646,754 13

INCORP~ DIRECTORS OFFICERS ORPHEUS D. ~AXAL¥$ ALFRED F. Bow~Er~ RICHARD J. BOYLA33~ DOUCLA$ W, BI',ASltEAR THOMAS P. CONNOR$ JAMES R. C00~ Jo~ A. CaOWE JOHN S. Dowv I]RI~$TON L. FOWLER PAUL M. HA~IN HIRA:K R. HANMER EDMVNV A. HARVEY HARRy L. HILYARD JOHN R. HUTCIIINCS, JR. A. LERoY JaNSON WILLIAM H. OGSBURY JAMES F. STRICKLAND PAUL ~, HAHN ............ President RICItAX~D J. BOYL:3~ ......... Vice Presidenl JAMZS R, COON ....... ; . . Vice President JOIIN A. CROWE .......... Vice President ~BESTON L FOWJ~B ....... • . Flee PreMden~ EDMUND A. HARVEy ......... Vice President HxRRY L. HILXAItD ........... Treasurer JOSEPH I~. WATERitOUSE ...... Assislant Treasurer A. LEROy JAN$ON ........... Audito~ J. ~rESLEY DALE ......... ,4*sistant ,duditor EDW&RD D. FL411ERTY ....... ,~s$istaat Auditor JOHN W. HANLON ........... 3ecretary FREDERICK W. KENNY ....... Assistant Secretary Executive Offlce t Corporate Office: Transfer Agent: Registrar: 111 FlrrE AvENtm. NEW yORK 3, N. Y. 117 i~L~]N S]REET, FLEMINGTO.'~, N. J. GUARANTY TRUST COMPAN~ or NEW YOaK, NEW YO~K 15, N. $q CIa'~ BANK FARMXR$ TRUST COMPAny, ~N~W YORK I$, N. Y.

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