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ANNUAL REPQRT- 1949 OFFICERS HERBERT A.,KENT . ROBERT M. GANGER TODD W'OOll ., President Executive Vice President Vice President and Secretary WILLIAM J. HALLEY . . . . Vice President FRANK HOPEWELL . IRVIN H. PEAK . GEORGE O. DA\'IES . Vice President Vice President Treasurer DIRECTORS JOSEPH f L BLACKNALL MELVIN E. DA'~X'EEYROBERT M. GANGER LE\VIS GRUBER WILLIAM J. H'ALLEY DONALD A. HENDERSON TODD WOOL. FRANK HOPEWELL ALDEN JAhiES HERBERT A. KENT JOSEPH V.NECAS IR\•.IN H. PEAK F. GLADDEhdISEARLE GENERAL COUNSEL - PERKINS, DANIELS & PERKINS TRANSFER A'GENT- THE NEW YORK TRUST CO., NEW YORIti, N. Y. REGISTRAR - THE NATIONAL CITYBANIi; NEWYORh, N. Y. Lx~ecutive OYjtce- I'1y~ West -i0th Street, New York I;S; N. Y.. Corporate O/jce- 15 ~~ Eschant:e Place, Jersey ~ City, N. J.

A TEN YEAR COMPARISON OF INVENTORY WITH SALES I MILLIONS OFDOLLARS 1940 1941  GROSS SALES 1942 1943 ' TOTAL INVENTORIES 19'4i' 1944 DISTRIBUTION OF THE SALES DOLLAR FederaF, State, and~LocaiTa.ea.. 48J4 C Cost of leaf.tobmrco, wrappimg, and other materioLs and ser.ices (bowg ht from, others) Wogas and sal6ries up to $5000 (directly concerned with produclion) Sal6.ries.of $5000 and over(monagerial and olll offlcers) Amownt set aside.for machinesond' plants wearing out (i-. dkpreciation) Amawnl paid to the owners of theb'usiness (dividends.t9 stockholders) Retained in,the business for future.needs and improvements 1. 07.95C. 1946 1947' 1948 1949' A W1_ 00.41¢' OlAU -W, z a

March3, 1950 To the Stockholders: YOU IMAY FEEL that past reports have been too: long and perhaps too pointedly directed towardl sales and advertising. Yet the success of these two phases of our business makes the balance of our report possible. We usually devote one page to consolidatedl income and earnedl surplus, giving two pages to the consolidated balance sheet. There is a half page depicting the distribution of the sales dollar, as well as al chart com- paring inventory and sales over a ten-year period. Employee andl Man~ agement relations are covered and! brief paragraphs having to db with earnings and dividends are usually lead items: Having given you an understandable picture of our financial structure we then like to view you not only as stockholders but as sales people and consumers, poten~ tials in our expanding business, andlas owners' counsel to management. Believing your interest projects itself far beyond immediate returns is the reason we always delight in taking you down; progress road and explaining the methods used to influence greater acceptance for our products and aims. E<I )'ll i11gs Earnings for the year 1949, continued the upward trend shown in 1947 and: 1948. Sa~les which, at $153,500,123.48 for the year, were the highest in the Company's history contributed largely to this good result. Aiding, also, was the fact that an~ increase in the price of cigarettes which had gone into effect in August. 11948 was reflected! in~ the earnings for the entire year. The net income of the Company availWe for common stock amounted to S6,1138,133.33, equal t'o"s2.73per share on the outstand- ing, common, stock. These earnings compare with S2.21 per share in 1948, $2.115 per share in 1947, and S1.2G, per sharein 1946. Dit~idclid, During 1949 the Company continued its policy, ofl paying four interimi dividends of 25c each per share on its common stock. The 3

year-end extra; which amounted to 50E per share in 1947 and' 1948, was increased in~ 1949 to 750 per share. The Board of Directors on February 15, 1950 increasedl the interim dividend to 30( per share by declaring a dividend of that amount on its Common Stock, payable April' 1, 11950 to stockholders of record March 8, 1950. It is intended to continue this d'ividendi rate, but the amount of the year-end extra, if any, willi of course depend on the result of the year's operations. s Leaf Our purchases of burley andi flue-cured tobaccos dtrring 1949 el- ceed6d' that of the previous year. This, of course, was due to the very, satisfactory increase OLD GOLD Cigarettes enjoyed. Crop control and Governmentt support kept prices at al level comparablp to those of 1948 and because of this condition we see no indication of lower leaf prices in the f'oreseeable future. Our leaf inventory is geared to care for furoher sales increases and to provide adequate protection for a period of at least two years. Empliiyec° <ruelAlaita,(),o»rerrt Rehar011c During the year 1949 we en)joyed very good relations with our employees and' w.ith the Unions representing them. The mutual prob- lems that arose during the year were settled' peaceably and did not, become issues. The new Federal NVage and Hour Law, which became effective on January 25, 1950 and prescribes a, minimumi wage of 75 C per hour, required certain increases in wages, chiefly in the handling of leaf tobacco, and this in turn, made necessary other adjµsrments in order to maintain historical' differentials in rates of pay. The cost of living, whichi has created so many problpms in recent years, seems to be levelling off gradually on a somewhat lower plane and this would have been a very important, factor tending toward stabilizing labor costs and in increasing harmony and contentment in our plants were it not for the fact that some of the Unions are now presenting avarietyofl so-called "f!ringematters which could further increase labor costs: WEhope and' believe, hon,ever, that these and'

other problems that may arise will be solved amicably with the cooperation of the Unions and our employees. S4tlesIt is, of course, a grear pleasure to tell you that OLD GOLD Cigarettes made exceptionally fine progress last year. Withi the momern- tum slowly but steadily gaining month after month there is no reason to feel such progress will not continue and grow in response to our consistent promotion program. EMBASSY Cigarettes now have what we term high spot distribu- tion. VolUme-wise it~ is still small, yet it places us definitely in the lbng cigarette group, a classification which is meeting with a constantly growingacceptance: Practically all of our cigarette business was confined to the domestic marker. Exports, as you know, were retarded principally by the lack of dollars in many foreign countries. For several years we have had! to~tell you of the more or less dbrmant situation surrounding the smol:ingtobacco industry. Pricedl at pre--,var$gures, limited volume makes impossible a proper support program. Notwithstanding this, UNION LEADER fared better than in the pre- ceding year, while BRIGGS' gives every indication ofl recovering from its post-war decline. Loose leaf' chewing tobacco is off slightly. This is accounted for in part by, the many manufacturing plants now trading smoking con- cessions for man hours. In this declining, though profitable, category our brand§, havemaintained their previous high percentage of the indhstry's total. The showingoE the cigar industry M 1949 was disappointing. The consumer demand for lower-priced cigars at a time when high-priced inventories still prevailed has caused many changes in, shapes, sizes and formulas. HEADLINE Cigars were introduced last Spring at five cents to consumer acceptance far beyond our ability to produce, a condition we are constantly striving to correct. MURIEL Cigars did not have a good year but they are, I am pleased to report, recovering from the setback which plagued the ind'ustry. The creation of al new cigar division announced late in 1949 will bring about a, clbser relationship among all phases of cigar manufac-

4 a turing. Under centralized responsibility supervision for every activity frorn; leaf procurement to counter placement is set up: We will be disappointed if, as a result of this concentration, we are not able to give youa~ statement showing progress in our next annual report., Sales PYII711 otio11' OLD GOLD CIGARETTES. This has been thethird fullyear durin- which we have employed our "Treat insteadl of a Treatment"'advertisin7 theme. Since the results of'carefully planned and welll executed adver- tising tend to be cumulative, our promotional activitiesfor OLD GOLD were thus able to make a full contribution towardl pushing the brand to a neww high in annual sales volume. The media employed to carry advertising messages to millions of cigarette smokers were virtuallythe same as those used in~. 19dS. Cer- tain logical additions were made to:the list~. However, the most notable shift in emphasis was made by our substantially increased use of telp- vision as this medium grew with unexpected rapidity in size of audience and' proved advertising effectiveness. Magazines. Concentratingwith~ outstandinglyeffective four-color full pages, we continued using every other issueofl LIFE and LOOK. At the beginning of the year we add'ed'SATURDAY EVENING POST to our list; here we also placed full' pages in every other issue. While striving for continuity of these ad's with our 1948 series, our Agency suecessfully gave them enough variety to~ achieve an~ even, greater readership and! reader impact than had been achieved with tltienotes•orthy magazine advertisements of the year previous. Szrszday Snpplentent.tand ' Neucspaper-Distribirterl Magazine.r, In ord'er to reach as many as possible of the millions of families not regu- larlyy seeing ourgenerall mag<izines;, and to provide ai greater concen- tration of inessages in the important urban markets, we contracted for full pages in a representaoivelist ofsyndlcated and independent Sun, day magazines and supplements. Radio. During the greater part of the year OLD GOLD sponsored two segments of STOP THE MUSIC; and during the entire fifty-tNvo weeks period we had at least one portion of this \umlier One radio „bive-away" show. The ORIGINAL AMATEUR HOUR', who5esponsorship was 6,

underwritten by us in the Autumn of 1945, continued'to grow M pub- lic acceptance throughout the year and has proved an effective vehicle f'or our advertising. In twenty important cities, to whichi we travelled the ORIGINAL AMATEUR HOUR for local originations in large auditoriums, the show made great numbers ofl smokers more OLD GOLD conscious andl further increased the good will for our brand' by raising important amounts of money for worthR-hilelocall charities. Tel'evision. As the number ofl sets in use continued togrow; we pro-ceeded to add stations to those already telecasting the ORIGINAL AMATEUR HOUR as fast ascabiefacilities andl time availabilities could be cleared. Todayz our ORIGINAL AMATEUR HOUR-TV show has one of the largest number of'station hook-ups of any of! thebig„ sponsored television shows. The various listener polls have con- sistentdy placed the show anaong , the first ten. In May your Company began sponsoring the second half-hour por- tion of STOP THE MUSIC-TV. It is gratifying to note that the tele- vision phase of this show has also been~ well received; and to note„ too, that our commercial announcements on both television shows have been voted by impartial judges to be t11ebest liked and most effective in building sales. EMBASSY KING-SIZED CIGARETTES. When we initiated nationtzll dis- tribution of this nen-brand in Januury;, 1I949our first salespronaotion problpm was to make as many smokers as possible qpickly conscious of the name and' the appearance of the good-looking package. This called for visual advertising in~ the actuall color used' Mthe label. The solution was achieved by purchasing a series of spectacular two-color double-pa;espreadsin LIFEma(,azine. Durin;the remain- der of the year the space units vvere reduced to half-pages in two colors and LOOK magazine andISATUR'DAY EVENING POST were added to theschedul'e. This modification made it possible f'or us to reach an even wiblerlist of smokers with greater f~requency and' within the budget set for promoting, this brand. O):gtf lll7Cl t'•i(in Our Retirement Plan reached into our Executive fannilv for the firstt time, causing the retirement of\1essrs. Whitefield. Glascock and Bowiin~„ men who have served us faithfully for man~-y=ears. ~tore- 7, 4

1 over, to weave together a more effectiv.eBoard a closer alignment ofall operative branches has been brought about. Our Board rrnakeup now consists of three outside Directors, one welll grounded inhnance, one in over-all production work, and one expert in, merchandising and management. From our Company group we have the Directors ot Sales for full line and cigar divisions, the Directors of rldvertisirng, Leaf, Manufacturing, Finance; Purchasing, and Labor and Industrial Relations„plhzsthe President, and Executive Vice President. The l~tter, Mr. Robert M. Ganger, a, new member of!. our 'Nfanagement family brings to us an enviable record of achievement. Twenty-two years with one company, starting in the usual position assigned to beginners. he demonstrated an ability that won for him a, partnership with the veryreputabieadvertisinga;ency now known as Geyer, Newell and Ganger. His experience in advertising, merchandising an& management has been distinguished by constant progress. Hispersornality and enthusiasm inspire action. Moreover, he is of an age that makes pos- sible our having the full benefits of his talents for many years to come. Mr. Ganger has, of course, severed all connections with the firm bear- ing his name. Mr. Melvini E. Daw.ley, Vice President and Ditecror of Lord &Taylor, one of New 1'ork's leading department stores„ who was re- cently elected a Director of our Company; has confined his activities since college d'ays to merchandising and mana~~gement. His early train- ing with Montgomery Ward Company and small stores have equipped him~ to handle his present very important assignment. During 1949' we made an extensive organization review, making such changes and additions to staff as was necessary, with the reassuring result of now knowing that all departments are properly, manned at the top and supported by a promising second line. A11111L611<'lI eetl7Bg We are impressed and pleased by the increased interest shoevn by stockholders in their corporate investments, parricullrrly as it re- lates to our Company. The attendance at our annual meeting and the return of proxies reflect a healthy condition very much to our lik- ing; however, many of you evidently take a negative view as to the importance of your holdings~ and apparentlyfeel Vour proxylacl<s