Tobacco Documents Online

1953 nnu I rep rt

NOTICE OF MEETING FlemkLgt~u, N. J., March 1, 1954 NOTICE is HEREBY GI~Ehr that the Annual Meeting of the Preferred "and Common Stockholders of TItE AI~ERtCAN TOBACCO COMPAN~ will he held at No. ~4 Court Street, FIeming~on, New Jersey~ at one-thirty o'elock in the afternoo~ (Eastern Slandard Time) on Wednesday, April 7, 1954, for the followhlgpmposes: (1) to elect Directors; and (2) to ~ransaet suchotherhltsineas as may properly come before the meeting, Tho Preferred and Common Stock transfer books will ~_ot be clo~d, but holders of Preferred Stock and Cormmon Stock to he entitled to vote must he holde~ of rseord at the close of husiuess ou .~iarch 8, 1954. JOHNV7~. HA~LON, ~e~e~ry

PROXY STATEMENT The enclosrd proxy is solicited on behalf of the Management. The proxy may he revoked in writing given to the Secretary at any time before being voted. Proxies in the form enclosed, properly executed by stockholders and duIy returned to the Management and not revoked, will be voted. Attendance at the meeting does not serve to revoke the proxy• Prior to the merger with American Cigarette and Cigar Company which became effective on Decem- ber 31, 1953, the Company had outstanding 526,997 shares of Preferred Stock and 6,454,110 shares of Common Stock, all of whieh arc entitled to be voted at the meeting. In addition, the number of shares of Preferred Stoeh and Common Stock of the Company represented by certificates issued after the time the merger became effective and before the clos¢ of business on the record date referred to bdow, upon sur- render for exchange pursuant to the Agreement of Merger of certificates which previously represented shares of Preferred Stock and Commtm Stock of American Cigarette and Cigar Company, wilI be entitled to be voted at the meeting. The maximum number of such additional shares which could thus become entitled to be voted is 58,200 shares of Common Stock and 834 shares of Preferred Stock, of which 47,280 shares of Common Stock and 354 sbarcs of Preferred Stock had thus become entitled to be voted as of February i, 1954. The Preferred Stock is entitled to four votes per share. The Common Stock is entitled to one vote per share. The record date for the determination of stockholders entitled to vote at the raee6ng is the dose of business March 8, 1954. ELECTION OF DIRECTORS Tbe Board of Directors consists of nineteed members who are elected to hold office until the nexL Annual Meeting or until their successors are duly elected arid qualified. It is intended that proxies in "the accompanying form will be voted for the nominees named below. Thane nomirtecs constitute the pre~ent Board and have served as directors of the Company for the periods commencing with the dates set after their respective names. The Company is informed that these nonfinees were direclly or indirectly the beneficiaI corners of outstanding securities of the Company at the close of business on Fehrmtry 1, 1954, as set forth after their respective names. Name Orphcu~ D. BaxaIya Alfred 17• Bowgen Richard J. goylan DougIan W. Bra~h~ar yenr First Other positions and Offices with Company Elected and Prinoipal 0 ccnpatlon (a) Director Common pre~erreol Vice.Presldent told Managil~g Director, 1940 1,fl61 62 Th~ ~Lflflel~]can Tobacco Cc~npally of gm Orient, I~o. (b) Assistant to the Pre~idcmt, The American 1951 550 Tob~co Company Vice-President and Director of Fur- 1929 3,025 d~SO ehase~, The American Tobacco Corn- pony Vice-President, American Suppliers, In- 1948 500 corporated; Conceal glalt~ger of Stemmerie~ of The American Tobacco Company and American Suppliers, incorporated (b) Director el Traffic, The American 1946 200 Tobacco Company Vice-l~eslderrt and Comptroller, The 1936 783 106 Kr~eriean Tobacco Cempmay 2

ag ~d !l- ff F. ~d ~d rio 3O ff ~e in 3S ~y l, 0{her po~iIion~ a~d Omens ~ Company EIected ~a~o and p~ncil~l O0ca]patlnu (a) Dire ctor Common prde~ed Iohn A. Crown Vice-President and Assistant (~tluf of 1931 800 105 Manufacture, The Amc~'i~an Tobac~Q Company John ~. Dowd Exeentlve Vise-p~esideat, American 1946 400 Suppl2~rs, Incorporated (b) A. Gordon Findlay Vice.Fresldenb American Cigarott~ and I953(o) 2~005 Cigar Division of The American Tobacco Company Prestan L. Fowler aflee-Preeldent and Chief of Manu- 1941 800 l(J0 facDare, The American Tobacco Company " Charles Ganshow Vice Prcsldent, American Cigarette and 1953(c) 900 Cigar Di~ision of The American Tobacco Co~apan~ Paul M, Hahn President, The _~merlcan Tobacco Com- 1931 4,784 pany Hiram R. Hanmer Director of Rczearch, The American I938 200 Tobacco Company E&nuntl A. Har~ey ¥1ee-pze~ideat In CAarge ul Sa)cs, The 1932 1,024 40 American Tobacco Company Harry L. I~ilyar d Treasurer, The Aznerlcan Tobacco Corn- 1944 350 pany John IL Hutohlngs, Jr. Viee-pre~idenb Kulerican Supplit~, In- 1951 300 coxpozate~l (b) A. LeRoy ]anson Auditor~ The American Tobacco Corn- 1948 318 party William H. Ogsburf Assistant Chief of Manufactnre, Th~ 1930 150 50 American ToLacoo Company James 1~. Strieklaad President, American Stlppilers, Ineorpo- 1946 520 ratod (b) (a) ~n each ]nstaneo) t~e po~it~omq and o~c~s with the Company n~ld irm suhsidiarlel listed after the name of a nominee are a~st~ ~:ds ~inclpaI 0ceapatlon. (b) Agillat~d company engaged ~n purchase sad handlin~ of ]c~f lobacco. (e) ICirsl IJeeame a d~¢etor ot the Company at th~ ~o~e o~ b~,,iness on December 31, 1955 when th~ merger with ~merlea~ Cigarette ttttd Cigar C~mpany bee~m~ e~etive, h~vlng ?0¢e~ named In become ~t director Jn the Affreement of Merger ~dopted at lh~ Spe~a| ~eetlng o~ $I0ekholders n~ the C~mpany held December 2, I953, The Company is also informed that none o£ the nominees was directly or indirectly the beneficial owner on February l, 195~, o~ ~ntstandlng securities o~ subshtiarie~ of Sac Company, other than 31rectors' qrtali~ylng shares, except Wi21iam H. 0ilshury, who owned beneficially on that date two shares of Cormnon Stock of Cuban Tobacco Company Inc. The Company is also info)rned that the ~9regolng nominees include three persons who were stock- hoIders ot Amerietm Cigarette and Cigar Company crying beneficlally more than 50 sharos respectively of its Common Stock when its merger into the Company became effective on Decemhar 31, 1953, namely: A. Gordon Findlay, 250 shares; Charles Ganebow, 101 shares; and Paul M, Hahn, 285 ebares. The Company is also informed that Mrs, Paul M. Hahn at that t/me owned 85 shares. By the terms o~ tha mergey) each such sl~are was co.vetted into 8 shares o~ Common Stosh n~ the Company ~avlng a t~en mashe~ value of 611~ per sha~e. These sharaholding~ were the .~ame as l~ad been reported to tlm stock~ hoIdors in the Proxy Statement for the Special Meeti.g of Stockholders of the Company held December 2, 1953, at which the merger was adopted by the ~toekholders. 3

Although the Management does not contemplate the possthility, in the event any nominee is not a c~udldate o~ is ~mahI~ to ~ex~-~ as a director at the time of the elecdo~h it is imeudc4 tkat t~e p~oxi~ w~lI be voted fo~ any nominee who shaIi be designated by tim presem Board of Directors to fill such vacancy. The Management is not aware at the date hereof of any matter that is intended to be presented at thls ~eming othe~ thau th¢ elemio~ o~ dlr~cto~s ~l a p~p~zal omLted ~om the p~ox'i and p~Dxy ~ta~- ment pursuant to Rule X-ldA-8(c) o~ the Securities and Exchange Commission: I~ any matL~ not known at the date hereof or so omitted is pxoperly presented for actiou at the mecting~ it is intended that the persons named ~n the proxies w/ll vote thereon according to their ]Jest jttdgraenL REMUneRATION Rem~era~ion of Directors aml Officers. There is set ~orth in the foBow~ng tabulation, on an aec~aal basis, all dlre~ rem~erafion paid by the Company and its s~b~idiaries to th0 fonowth5 persom for services in all capacities while di~oetors or o~ers of the Company dmln5 its last fiscal year: each director, and each of the three highest paid o~¢ers, of the Company whose direct asg~ate remuneration exceeded $50,000; and all dlrec~ors and oi~cers of the Company as a group. Estimated ann~a~ redr~m~t b~efits to the same indlvldus]s at normal retirement date under the Retirement Plan for employees ado~d by the stoc!tholders at the 1949 Annual Meeting are stated in Colum~ (5). (I) Name st i~dividu~I or identity of ~TOUp Orphex~ D. BaxaX~s AHred g. Bo~.dvn Richard J. BoyIa~ Douglas W. Rrashear TEoT~tas P. Conn(l~ James R, Coon(b) John A. Crows(b) John S. Dowd Preston L. Fowled(b) (2) Capacities in which x~ ~ u n o~a tion xv as ~e~ei~ d Vicc~Presldent and Matmg~ng Ditcher, The Amerlean Tohaceo Company of the Orient, Inc. (a) Assistant to the Presldonb The American 39,I57 14,000 Tobacco Company ¥iee-Presi&nt and Director st Par- 50.000 $105.481 I7,000 eha*~, Tim American Tobacco C~m- Irony Vice-President, Ametlca~ Suppliers~ In- 45,000 14,584 corporated (a) ; C, enzra/ Manage~ of $tenmacrles Director of Traffic, The American To- 34,000 11,575 bases CompmW Vics-Preslder~t and Comptroller, ~h¢ 50fi00 105,481 17,000 Ax~ericau Tobacco Company Vice-Prcsiden~ and Assistant Chief of 50,000 105,481 17,000 Manuhcttu'c, TI~ ~sriean Tobacco Company Executive Vice-President, American Snp- 60~000 17..983 pilers, Incorporated (~) Viee-PreMdent and Chle~ o~ Manu~ae- 50~000 105,481 14,816 tree, The American Tobaee~ Company (a) Affiliated ~mpany engaged in purchase and handling of leaf tobaeeo~ (b) Also a~r of af~iatM company ar eompa~ies. 4 (5) Estimated mva,¢,¢.l h~ncfit (4) at norms! (~) ~avllcipation ratiremen~ ,~laJ~s ~ profits dat~ $ 50,0~ 516,~68

II Nameo indSv/duaI or id~aCtty nf G,c.9 Patti M. II~lm(b) Hiram B. Hanmer Edmm~e] &. Harvey Harry L. Hilyard(b) John R. Hmc~ug~, It. A, LeRoy fanaon William H. Ogsbury fames P. gtrlcldand i21 Capa©iIi~a in whtek remttner~C~on was ~4 Pre~ddonL, 'Fne American Tobacco Com- pany; President, American Cigarette and C~g'ar Company Director of Reseatc'a~ The Amorlean Tobacco Company x.rice-Proslden¢ i11 Charge of Sale% The Alnerlcan Tobacco Company Treomm:er, The ~araeriean T~Lacco Com- pany ~flee.PreH~emg American Suppliers, In- coGooraLed (a) Auditor, Thc Aracrican Tobacco Com- pany Assistant Chle~ of Manufacture+ The American Tobacco Company Presideng Amezdcan Suppgers, hmor- porate~ (a) EItimat~ ~nnual retirement b~St (4) at normal (~t P~r ticipatlon retirement Selane~ ia 9r~&t~ 3120;000 $131,852 $25,000 40,000 I~520 50,oog 105,481 I7,000 50,000 ,L~,293 50,000 15,669 50~000 17,000 ~,000 16,476 92,1,667 659,259 Directo~ and O~cers Directors and O~cers as a group Eta a gfou~ (a) Affiliated ¢ompa~F cn~aged ha p~tehsse ~nd hamdllng o~ leaf toLa~¢o. (h) ilso ¢~¢e~pf affI/iated company ~r o~mpa,ies. T~e amounts staled in Column (4) above were accrued as incentive compensation (based on amount of Company profits), under Article XlI of the By-Laws, as amended by vote of die stockholders at the I951 &mum Meeting. No amount was set aside or accrued during the Company's last fiscal year for pension or retirement benefits proposed to be paid under any ¢xisthag plan by the Company or any of its subsidiaries to any o~eer or director of rite Company. The Retirement Plan for employees adopted by vote of the stockholders at 6~e 1949 ArmuaI Meeting e~ve~ approximately 19,(100 regular fulbtime erapl~yees of tke C, Zmpa~y and its subs~diaxies. The aggregate amount of remuneration for the fiscal yeax 1953: received from the Company and its subsMiaries, directly or iedirectly, on an accrual basis, by all the directors and officers of the Company as a group, was approximately fifteen one-hundredths of 1% of the Company's consolidated net sales. MISCELLdNEOUS Any ~tocitholder making written request therefor to the Secretary of the Compa*~y will be fmmi~hed a summary of the Annual ~ecfi~g ~ich Mll be prepared after the meeting has been held. • Messes. Ly~rand, Bos~ Bros. & Montgomery have been for many years the independent auditors for the Company, and are ,appointed by re~olufion of the Boa~d of Direclors. in accordar~ce with the Company's customary pr~i~e, a memh~ ~f the ~m ~f audit~r~ ~iR attcad the &m~ ~eting a'~d respond to questions which may be a~ked by ~toeI&olders. Comments or suggestio~m by stoelthoidexs with regard to the audit ere we/corned, a~ the- are with ~ard to aii othe~ matters aft'octin~ the Company's interests. 5 3 % i

Flemlngton, N. ]., is reached by the Lehigh Valley Railroad. The presant train schedule, which is subieet to change artd should be confirmed, is as follows: Leave Pennsylvania Station (33rd Street and Seventh Avenue, New York, N. Y.) I0:55 A. M. Arrive Flemington Jmlcticn 12:03 P. M. Leave F~craingt~rL 1uv.~on 5:25 P.M. A~dve Pettr~y[vatda StafiQzt 6:40 P.M. The Company ~ proettr¢ transportation from New York to Fierningtou by railroad and return by railroad or, if expressly requested, return by bus, at Co1~pany expense for ~ay ~o~khzlder zf re~d de~uz of attentling the meefmg, o~ his notifyi~tg the Secr0tary in writing at l 11 Fifth Avenue, New Yorh 3, New York, prior to March 3I, ]954, that he wishes ~ush ixan~portation obtained, If you do no~ plan lo attend, you are urgently xe~inested to execute the enclosed proxy and real1 it to the Company promptly. Expense of Sol~itation, The expense of the solleltatlon of proxies for this meeting, including the eQst ~f raaHh~, wiE he bettl¢ by the Corapany. Inaddltiontomailh~gcoplesoflhismaterialtostockht~]der~ the Company will request persons who hold stuck in their names or snstody or in the names of nominees for ¢shers, t¢ forward ¢~pic~ ¢I such ~t~rial to th~¢ 9er~s {~r ~vho~ they hold ~toek of ~h~ Company artd to request authority for the exee=fon of the proxies. To the extent necessary in order to assure sufficient representation at the m~ti~g, o~eers and som~ regular empI~yee~ ~{ the Corapany and approxlra~tely 6 employees of Philip G. Cameron Company wi2l request the return of proxies by telephone, telegram or in person, a~ an estimated cost of ~o~t $14,000, '~he amount of the expense to he bozne by th~ 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 he necessary ~or ~e Company to send telegraphic solicitation to those steckhulder~ who have not ~spo~ded. Stoeltholders who do not intend to be present al. the Meeting are urged to send in their Proxies without de~ay. Pzoml~ reep~nse is helpful, vnd yo~r cooperation ~vi~l he ~ppre~iate6. Fchx%ary 9, 1954

annua| repor INCORP~TE~~/ FOR THE YEAR ENDED DECEMBER 3~ 1953 WITH CONSOLIDATED BALANCE SHEETS CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS Executive Office 111 FIFTH AVENUE - NEW YORK 3, N. t'.

19~3 Net income per ¢onunon sllave ...................... $5.90 Dividends paid per common share .................................... 4.00 1952 $4.79 4.00 Not sales ................................................................... $1,088,380,427 $1,065,738,454 Income~ before taxes on income .......................................... 99,231,963 78,351,963 Net income ............................................................... 41,225,921 34,068,963 Divideads paid (common and preferred) .................... 28,978,422 27,095,973 Po~on of ~ inceme inv¢.~ted in assets used in the business and to provide for debenlvxe sinking ~mid r.qldrements 12,247,699 6,972,990 Current assets, December 31 ............................................... 725,577,322 712,653,905 Current liabilities, December 31 ......................... 177,272,491 161,399,785 Net working capltal, December 31 .................... 548,304,831 551,254,120 Number of stuckholders at December 31: Common ........................................................................ 72,964 Preferred ........................................................................ 7,959 74,792 8,166 2

Fehmtary 5, 1954 t~D OIlR ~'£fg~]KHD~D]gIK~: Your Management presents in this An* nnal Report financial state~aents covmqng the operatlons of your Company, including its consolidated suhsidinries, for the year 1955. The "Highlights" page opposite gives a convenient *ummary of the finanelal results for last year as wail as a comparison with I952, and this letter discusses the year's more important developments. Some of the significant facts relating to 1953 operations were these: I. Dollar sales reached a new high of $1,088,380,427. Unit sales of cig- arettes declined sEglaly. The Com- pany's dollar and mlit sales continue tn be the largest in the industry. 2. Net income for the year increased to $41,225,921. 3. American Cigarette and Cigar Com- pany, a subsidiary of :ccitt Company, was merged into Tile America~ To- ha~¢o Company as of December 31, 1953. SA~E5 • m Sales of the Company in I953 amounted] to $1,088,380,427 mid were 2.12% higher than in 1952. The increase in dollar sales resulted from the increase in the prices of the Company's elgarette brands which be- came effective a~ the end o£ February 1953 when cignrette prlcea were decontrolled. As a result of the success attained by yo~r Goml~any's pALL ]~/Ig.LL a~4 HER- BERT TAREYTON Cigarettes (both king- size), a llumber of competitive brands en- tered the king-sizo field in 3952 and 1953 by introducing king-slze .asrsions of, and with, thelr standard-size cigarettes. The introduction of these brands in klag-size has materially expanded the king-size share of the market. Notwithstanding this new competition, PALL MALL increased its unit salas volume substantially in 1953; and HI~RBERT TAREYTON sale~ also increased. The industry's gain in king-size sales has been offset by declines in the sales of standard-size dgareaes. Although the unit sales of LUCKY STRIKE Cigarettes de- dined in 1953, ~urvoys indicate that the brand has slightly improved its position in the standard-slre market, DoEar sales of cigars of the Company and its subsldlarles ~vere higher in 1953 than in I952. Smoking tohaczo sales, in line with the trend of the industry, declined moderately.

Growth in Dollar Sales Since I940 I t~4o = to~l While sales of fiker-tip cigarettes in. creased substantially during 1953, they still represent only a mnall percentage of the indu~try's total sale~. Your Management has been watchful of developments and sales potentialities of this type ef cigarette and has engaged in extensive researsh on filte~tips and in preparation for eventu- aUties, hut haa felt, up to this time, that it would not he advantageous to your Company to enter this field. E/dlNINGS ~ T~S Consolidated la~ome in 1953~ both he- fore and after taxes, was higher than in 1952. The increase resuked from the higher price~ of dgarett~ whleh were in effect for approxlmalely ten months of the year. However, increased cos~ and Mgher tax liabillty than in 1952 largely offset the increased revenue resulting from the higher prices. Taxes on 1953 income were equivalent to $9.26 per Common share compared with earnings of $5.90 per share after taxes. D,z~']DE~nOS Dividends at the same rate per share as in the past several years wore paid on the Common stock in 1953, consisting of four regular quarterly dividends of 75 cents each and an ex~'a dividend of $1.00. On January 26, 1954, your Board of Directors declared a regular quaxterly divi. dend on the Common stock at the increased rate of 85 cents per share, and an extra dividend of $1.00 per share. Aeeordlngly, a dividend of $1.85 per share is payable March 2, 1954, to Common stockholders of record February 10, 1954. 1954 marks the tlftieth consecutive year in which dividends have hecn paid on the Common stock. 4

Sales, Not Be[oreTaxes and Net I~zcom~ CIGARETT~ ~K~CES In the Annual Report for 1952 your Zvlanagoment expressed the hope that the terminailon of cigarette prioe controls would soon be forthcoming, to permit a long over- duo increase in prices to offset the increases in costs affecting the Company's operations. A few days after our 1952 report went to pro~s, the 0fl~ee of Prleo Stabilization decontrolled cigarette prices. Accordingly, at the end of February 1958, the Company Increased cigarette prices about 5 pox cent, or 38 cents net per thousand for LUCKY STRIKE and 43 cents net per the.sand for PALL MALL and HERBERT TAREYTON. However, still higher costs since then have offset somewhat the beneficinI effect of the foregoing price increases. EXCISE TAX On November l, 1951, the Federal ex- cise tax on cigarettes was increased from $3.50 to $4.00 per thousand, or to 8 cents per package of twenty. This tax will revert to $3.50 per thousand on April 1, 1954, unless Congress deeldes otherwise. [I~TENTOIIIE$ At the close of 1953, inventorles of leaf tobeceo, mannfacttxrcd ~toek, operating sup- plies, etc., were higher thaa at the end of 1952 by approximately $10,000,000. This increase was due to the larger qaantities of leaf tobacco required in the production of PALL MALL and HERBERT TAREY- TON king-s/ze cigarettes, which form an increasing proportion of your Company's sales, and higher prices paid for tobacco dttring the 1953 auction season. The growth o£ the Company's sales and the commensnrLttt~ rise ill inve~ory vahms from 1940 through 1953 are set £orth in the chart on the next page.

./ l~e~lories and Sales LYIAF TOBACCO Acreage restriction at the farm and Gov- ernment price support at the auction mar- kets were again in effect in 1953 for both flue-cured and Bnrley leaf tobaccos, the principal types used in making cigarettes. The acreage allotted for ~ue-cured to- bacco for 1953 was somewhat below that for 1952. This factor, together with the hot, dry- weather which lowered the yield in North Carolina a~d Virginia, reduced praduetlon of flue-cured tobacco last year by about 8 per cent. As a result the prices wbleh prevailcd in the fine-cured area were higher than in 1952. In 1953 the Bm-ley crop was about one- eighth smaller than in the previous year. Burley prizes in the auction markets to the end of the year were klgher than for the previOll$ Se~soll. Prices of the 1954 crop~ of flue.cured and Burley will z~galn be suppot'~ed by the Government, F]~AIqCES Bank loans at the end of 1953 were $94,000,000 compared with $92,000,000 at the end of 1952, an increase of $2,000,000. Cash in banks and on hand at the end of 1953 was $29,454,408, compared with 826,409,726 at the end of 1952, an increase of $3,044,682. During the year, $12,147,000 prln- eipal amount of debentures were redeemed through sinking fund operations. This amount ineladeB 81,411,000 of 31~ per cent debentures due in I977 and repro- serifs the first redemption of these bonds since their issuance in March 1952. Your Management does aot presently contemplate any new fiamneing. During the year your Company has made propo~Ms to the Ways and Means Committee of the Congress and to the Treasury for legislative relief from the

neeesslly of tying up large amomats, es- timated at fifty to sixty million dollars, in prepayraent of Federal exeise tax stamps. Our proposal provided for deferred pay- ment of the taxes in st~stantially the form that practically all other commodity ex- cise taxes are paid. Favorable aetio~ on these proposals would free large sums for productive use by the Company, ~IERGER The stockholders of The American To- bacco Company and American Cigarette and Cigar Company, on December 2 and 4 respectively, adopted an Agreement of Merger of the latter company into The American Tobacco Company. The merger became effective at the close of business on December 31, 1953. ~MOKING ~ ~EALTH At one tlme or another within the past 350 years practically every known disease of the human body has heen ascribed to the use of tobacco. One by one these charges have been abandoned ~dih the realization that they were not tenable. Because tobacco gives pleasure to so many millions of people, ~t is only natural that attaek~ made against its use create publi¢ interest and controversy. During the past year some statements ' were widely publicized claiming a rela- tionship between elgarette smoking and lung cancer. As your President, I under- took to respond to these claims by cuff lug attention to the fact that examination of recent sela~titlc reports and pubIieations reveals that no persuasive or definitive eonclusion respecting the cause of this disease, or the alleged relation of smok- ing thereto, has been established. Your Company individually has for years worked at and supported scientific research of a fundamental nature on tobacco and its relation to health, within its own laboratory and in independent in- stitutinns. A Tobacco Industry Research Committee to aid and assist research and furnish pub- lie lafot~nation on the relationship of smoking and heaDh was orga~dzed at the year end. Announcement of its forraatlon was published on January 4, 1954. Your Company, with numerous other dements in the industt3~, joined in sponsoring this Committee and its objectives. Messrs. A. Gordon Findlay and Charles Ganshow, both of Whom had lseen Vice Pmsldents and Directors of American Cig- arette and Cigar Company prior to its merger into The Amerlean Tobacco Com- pany, became Directors of the latter Com- pany at ~he time of the merger. The Board of Directors has therefure been increased from seventeen to nineteen 121~llqhers, On behalf of the Board of Directors I am pleased to acknowledge the interest evi- denced by you, the stock/aolders, in the affairs of our Company, and I should also like to express our appreciation and thai~ks for the continued cooperation of our cus- tomers and employees. PALm M. HAa~ Pres~dem i! : q, g. J~

i i ..... 1953 OPERATIONS AT A GLANCE THE COMPANY RECEIVED FOR GOODS IT SOLD AND FROM DtVtDH4DS. ~'ED.EST AND MISCELLANEOUS $11089,719,000 THIS IS SET ASIDEs 53~/2 % roz REVENUE STAMPS AND TAXES $582,844,000 27% F~ TOBACCO (including applicub[e expenses) $289,583,000 15% TOR WAGES, GOODS, SERVICES; ETC, $164,943,000 1% FOR RONO AND $11,124,000 BANK INTEREST 21/2% FOR DIVIDENDS $28,978,000 TO STOCKNOLD~.S 1% FOR EARNINGS RETAINED -~12t247:000 10 MEET FUTURE NEEDS

• HI NET SALES .............................................................. Co~t of sales, selling, general and admhdetmtlve expenses OPERATLNG PROFIT ............................................. Other income ............................................................... 1~53 19S2 $1,088,380,427 $1,065,738:654 978,673,071 978,021,712 109,907,356 87,716,742 1,338,567 1,472,029 111,245,023 89,188,771 11,124;367 9,899,263 889,59'3 937,345 12,013,960 10,836,808 Interest and related charges ........................................ Ogmr deductions ~om income ................................ Total deductions ...................................... [ncerae, b~f~e taxes O~ income ....................................... 99,231,963 78,85].963 Federal and other t~.xes on income (Note 1).f ........... 59,795,000 44,283,008 $9,436,963 34,068,963 Refund and adjustment of prior years' £ccleral and state taxes including interest ................................... ,.:. 1,738~958 -- I~ET INEOS~tE ............................................................... 41,225,921 .8¢,06B,963 Retained earnings, hegilming of year .............................. I19,727,06~ 112,754,074 160,952,985 146,823,037 Cash dividends: Common stock, $4 per share .................................... 25,816,640 23,933,991 Preferred stack, $6 per share ............................... 3,161,982 3,161,982 Total dividends .......................................... 28,978,422 27,095,973 Re ained earnings, end of year (Note 2) ................. $ 131,974,563 $ 119,727,064 Depreciation provided and ~harged to costs and expens~ amotmted to $3,220,054 in 1953 and $3,100,517 in 1952. ,v i" :!

a~ of Deee~uber 31, 1953) and all WhoBy owned domestic ~.5~idlar~ee exeept The Amorle~ Tobaeeo C~Ip4mT 0f the Orlent~ ]n~ A~ of December ~1 ASSETS 1953 Demand deposits in banks and cash on hand ....................... $ 29,454,408 $ 26,409,726 Accounts receivable, customers ....................................... 44,140,325 44,509,603 Leaf toi~ac~, manu~¢taxre4 ~tcw.k, ~geratlng, sapi~lie~, etc., ~t average cost ................................................................. 651,043,509 640,753,119 Miscellaneous accounts receivable ............................... 939,080 981,557 Total 0mcrent assets ......................................725,577,322 712,658,905 Investment~ in and advances to unconsolidated subsidiaries, at amctmt~ not in excess o~ cost (Note 5) ............................ Insurance dept)sits and miscellaneous inves~ents ................ :._ 19,624,749 19,3461133 1,873,413 2,375,356 B.ea[ e.~te~ mzehh~ery, f~xtures, etc., at cost, le~ a~[o~ran~e {~r depreciation, 1953, $55,505,283; 1952, $32,856,525 ........... 46,570,492 44,479,535 Prepaid expezlses and deferred charges ........................ 5,224,207 4,299,419 Brands, ~rade-marks, patents, good will, etc. (Note 4) ........ 2,198,147 1 $801,068,350 $783,154,349 10

,..m LIABILITIES 19|2 Noms payaMe to banks ......................................................$ 94,000,000 $ 92,~,000 Accrued taxes ......................... ~ ........................................ 61,631,819 48,032,415 Accounts payable and accrued e~pense~ ................................... 9,743,176 9,626,874 Divideald on preferre~l stock for quarter ended December 31, 790,496 790,496 Debentures t~ be reAeemed tkrott~h sinking fund operations 11,107,000 (Note 5) ............................................................................... 10,960,000 Total eurroat habili~es .................................... 177,272,491 161,g99,7~5 Debemams (Note 5) .............................................................. 231,266,000 243,570,000 408,538,491 404,959,785 Mino~ity intcr~t in Amexican Cigarottc and Cigar Company (merged late the Company as of December 31, 1953) ......... -- 1,110,609 STOCKHOLDERS' EQUITY Capltal stock (1h:ota 6): Preferred, six per cent eumu|stive, par value $100 per abate 52,783,100 CommotI, par value $25 per share ......................................... 162,307,750 Excesa of ~/et proceeds t'mal :ap~tal stoek~ issued ov¢~ par valu~ (Note 4) ............................................................................ 52,699,700 I61,352,750 44,964,426 43,294,441 260,555,275 257,346,801 /:[etalned earnlng~ (Note 2) ............................................. 131,974,563 119,727,064 Total ............................................................ 392,529,839 377,073,955 $801,068,330 $783,154,349 ii ,( ,! :! kL I1

L 2. 3. d. Includes federal excess profits taxe6 of $5,700,000 for 1953 and $2,065,000 (after deducting ~azrydia& czedit of the Company of $1,220,000) for 1952. Under the provisions of the indentttre relating m the Twenty Year 3~o Debentures, duo j'~nuary 1, 1968, ca~ dividends declared on common stock and payments made ia pur- cha~Lng shares of any class of the Company's stock .,ubsequent to December 31, 1947, may not exceed the aggregate of $15,000,000 and ccmsolidated net income earned st15soquent to December 31, 1947, less dividends paid on preferred stock. At December 31, 1953, approximately $101,200,000 of retained earnlngs was free of this restrlction. The net tangible assets applleable to the investmertts in and advances to tmoonsoIidated subsidlaries at December 31, 1955, amounted to $25,6~1,164. Divldends and illterest of $2,029,280 were received from these mubsidlarles in 1953; the equity in earnings applicable thereto amounted to $2,057,103. Brands~ trade.marks, patents~ good wilI~ etc. and excess o1 net proceeds from capita/ crocks iss~ted over pint values were increased as a result of the ¸merger of American CJgarett~ and Cigar Company, a former consolidated subsidlary, into the Company as of December 31, 1953. 5. Debentures outstanding at December 31, 1953, comprise: Princlpal Amounts Re~aMe After Dee. 3L 1954 Redeemable Within One year* Twenty year 3%, doe April 15, 1962 ...................................... $ 3,533,0fl0 $ 58,537,000 Twenty ysar 3~, due January 1, 1968 ................................. 3,000,000 57,000,000 Twenty.five year 3%, ~ue October 15, 1969 ........................ 5,16I~000 68,553,000 Twenty.five year 3~4%, due February 1, 1977 ...................... 1~43.3,000 47,I76,000 ~I1,107,N?0 $231,266,000 * Estimated pri~elpel amounts to be redeemed ttl~'~ u~ ~inldng ~n5 operations at prices as provided by the ~denture~. Capital stock at Decemhex 31, 1953, comprises: Shar~s Issued Shat~ Authorized Before ~,[erger ~t~r MC~Z Preferred .................................... 540,106 525,997 527,851 Common ....................................................... I0,000,000 6,454,110 5,512,310 12

/ • The Board of Directors and Stoeltfinldera o[ TI~E AMERICA~ TOBACCO COI~IpAlgg. We have examined the consolidated J0alance sheet of THE AMEIIICAN TOBACCO COlgpANy as of Deceml~er 31, 1953, and the re]~ted eonsolldated statement of income and retained earnings for the year then ended. The financial statements of American Cigs~ette and Cigar Company, ~ £ormer consolidated subsidiary which was raerged into the Company as o£ December 31, 1953, were e×am[ned Jay other indepe~adent eertitied puJal~c accountants. Our examination was made in accor~lance with ge~ereily accepted auditing standards, and accord ngly ncluded such te~ ~ of the accotmting records of the companies (except American Cigarette and Cigar Company) and saeh other auditing procedt~res as we considered necessary in the clrcumstances. We made a slmilar examination £or the year 1952. In our opinion, Jaased upo~a ottr exam[natlons and upon the zepelt~ of other independent certified puJa]ic aceountant~, the ~¢company[ng balance slleets and related statements of income, and retained earnings present £ei~ly the eonsolldated financial position of The AmericanTobacco Company and ~¢ subsidiaries included there[n as of Decemfinr 31, 1953 and 1952, and the consolidated results of their operafiens for the year~ then ended, in cvn£ormity with generally acccp~ed Rccount[ng pr[nciples applied on a consistent basis. ¢ LYBRAND, ROSS BROS. & MONTGOMERY New York, Fshruary 2, I954.

¸ For years ended Deevmber 31 NET SALES ....................... $1,088,380 Cost of sales ........................ 978,473 OPERATING PROFIT ..... 109,907 Other inoome -- net .................. 449 110,556 Interest a~d related charges ....... 11,184 L~0rae, b~fore taxes on i~eom¢ .. 99,238 Taxe~ oil hmome .................... 59,795 39,43? Prior years' t~tx adjustments~ ~T INCONE ..................... DtYIDK~D$ PA|D: Common ........................ 25,816 Preferred ........................ 3,162 PQttlou af act [~eome invested hi assets used in the Imsiness and to provide for debemure ~nk- ing fund reqairements ............ $ (li~ "ghuu~a~d$] 19J__/~ t95~ 19s~ 194~ $1,065,738 $942,552 $871,621 $858,996 978,021 853,399 785,004 773,721 87,717 89,153 86,617 83,275 534 242 1,095" 62 88,251 89,395 85,522 83~37 9,899 8,984 8,797 9,010 78,352 80,411 76,725 74,327 44,283 47,738 37,454 30,361 34,069 32,675 39,271 43,966 -- 457 2,462 1,709 4L226 84,069 35,II0 41,733 45,675 28,934 23,514 21,514 21,514 8,162 3,162 3,162 3,162 28,978 27,095 24~676 24,676 24,676 12,248 $ 6,973 $ 8,434 $ 17,057 $ 20,999 • Dvda~a 14

A~ M December 21 ASSETS 1953 Cash ............................................. $ 29,654 Accounts receivable, eastomen5 ..... 44,]40 Inventories ................................ 651,044 ~IiseeUaneous aceoualts reeeiva~]c 959 Total etrrreizt assets ............ 725,577 Investraent~ in and advances to un- consolidated subsidiaries ...... 19,625 Insuranco deposits and miscellane- ous investments ........................ 1:873 Plant and exltfipment -- net ..... 46,571 Prepaid expenses, ere ............ 5,224 Brands, trade-marks, etc ....... 2,198 Total assets ................. $801,0(~ (ht Thousandal 19s__~2 19t~ v 950 i 9.~749 8 26,410 8 31,992 $ 22,157 8 17,949 44,509 40,571 36,783 53,i28 640,753 594,544 532,679 531,558 982 L127 1,407 1,127 712,654 663,234 593,026 583,762 19,346 16,104 15,729 17,66I 2,375 2,320 ] ,920 2,232 44,480 44~2d~8 4;3,747 43,507 4,299 3,574 2,983 3,345 -- -- -- 54,099 8783,104 $734,480 8657,405 8704:606 LIABILITIES AND STOCKtIOLDERS' EQUITY Notes payable ............................ 8 94,000 $ 92,000 $140,000 $ 73,000 $ 80,000 Accrued taxes ........................... 61,632 48,032 50,798 39,9d2 34,906 Accounts payable and accrued ex- penses ...................................... 9,743 9,627 11,134 8,919 7,542 Preferred stock ~xldea~d ............. 790 790 790 790 700 Funded debt due within one year 11,107 10,950 9,456 10,722 9,694 Total earre~nt ]JablUfies ..... 477,272 1.6L~399 212,178 133,373 132,932 Funded debt 231,266 Minority intea-est ................ -- .Capital .............................. 260,555 Retained earmngs .......................... 131,975 Treasury sto~k (dedwtlon) ............ -- Total liabilities and sto~- 24:3,570 205,430 215,653 226,375 1,111 1,046 967 B65 257,347 2]0,079 210,079 210,079 119,727 112,754 104,320 141,362 -- (7,007) (7,007) (7,007) holders" eqmty ............. 8801,068 $783,154 8734,480 $657,405 $704,606

H INCORp~/~/ DI~CTOR$ OFFICERS ORPHEUS D. BAXALY$ zg~LFRED F. BOWDEN RICHARD J. BOYLA~ DOUGLAS H'. BIL~SHEAR T~O~LI$ P. CONNOF, S JAMES R. Coon IoH~ A. C~owE JOI~N S, Down A. ~ORDON FINDLAY PRESTON L. ~'OWLER CHAKLE$ GANSHOW PA~L M. HAa~ Hm~M R. H~m~ER EDMUND 1%. II~VEY HARRY L. HILyARD JOltN R. HUTCHINGS, JR. A. LERoy JANSON WmLIA~ H. OcssuRy ~AMER F. STRICK/~AND PAUL M. HAHN ............ President ~ClIA~D J, BOYLA~r ......... Fi~ President JA~ES R. Cool'," .......... V~e Presldem JOHN A. CROWE .......... FiGs Pre~dent PRESTON L. FOWLER ........ F{~ Presfdem ~DMU~D A- HARyEY . • ~ ..... Fice Preddem HARRY L- HILYARD ........... Treasurer A. LERoY J~L,~ser¢ ....... .... Auditor ALFRED F. BOWDEN ...... Assistant to the Preddent JOtIN ~r. ~-~ANLON ........... Searelary ]. WESLEy DALE ......... ,4s~istant Auditor EDWA/tO D, FLAIiEIITy ....... Assistant Auditor FI~EDERICK W, KEl%%'y ....... Asslstaat Secretary JOSEPH ]~. WATEI~BOUSE ...... Ass{s~ztl Treasurer Executive Office: Corporate Office: Transfer Agent: Reg|strar: iii Ft~ AVENUE, NEW Yofu~ 3, N. Y. 117 IV~IN S~R~ET~ FLEMINGTO~ ~. J. GU~T~ TRUST Co~I'~Y Ol~ ~w YORK, N~W YORK 15, iN. Y, Crm: B~U~-K F~E~S TnUST Ce~P~"~ NErZ YOI~K 15, ~q. Y.

jl .....