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ANNU AL REPORT LIGGETT' & MYERS TGBACCO COMPANY D E'C E M B'E R 31, 1948 WITH CO.NSOLIDATED BALANCE SHEET AND STATEMENTS OF COr'SOLIDATED I~'~COME AND SURPLUS :.y

PRESJIDE\T.'S HEI'01f('T TO S'(i/a(:KHOLnEIf` Ti, tier StrN•I:INoIJrrfi: The rrINKC of! ycNrr Gmqwus. inrhnling its whtoll.•a.wrw+cl %rdMirli•rr. rc.mpauc, fiw tier ..•ar 1948. wwith tNNnpar•rli.v 6rpurr: Aw tier lorrvistua wrar. ix herrwitli rubmittrd. Inrhudrd arr thr Gweiwjidartrcl IlhliYnrr Slrrrt. qt•rtrrnrnlA ctC;cbn:oAidatrd Inc•umr an+ll ~urplu~. antf arulit rrlMwt! of Mrfwra: Ilicpl:inp- & ' Sr11x. indepenYlrnt certified pul.lfr arce Nrntantr. 1'rn6t+ fYN• tier .,rar lclt$ in trrnYai of clollarL wrre favorablr„liul in rrlatinn, tu Aali•o an+ll in relation to in.r~trcl rapilal IoIuK kNN•nmrdl naNrr.•, the rurnrnt ratir of hru6ts is nmrrh Lelu.o tier average fitr tlH• hrr.war 1N•ri#NC 1'436' tMt 1Qa(1. '/"hr net inrdomr aIeIoIiralsle to CaNanuNr StYN•k. after drYlurlNNY Iof all rhargrf. inrluding clrprc•Y•iaticrn. interest on inde•liNdhK+a,. Federal and Stiate inrome ancll nther t:YNc•%; ancl djvidrnd,• on 1'reCrrrcvl Stnc•k. aruiNrntrd to g~'_ 7."YN1,ya l. rtlnal to. Q8.f1(i prr sh•rn• #J'(:rlrurne Nr StcN•k cocrwanrlingat tlu• rnd ot tier .•rar. and equal too •1.cW~' tof dollar sales fur thr %rar. Thr roNnlParablr nrt inrunre fnr the .rar 141. was $_l.laW.:.(kt. rqu•rlltYr. 8633 prr, rhan• of (:..ruuron Stow•L. anrl /.1 i jc; of drollar x alr+. .Again in lctlll Ih•• -.alurne of salrr<. 1NHh in dollar>s and unit r.a11•A uf rigarettc•s: rurrrJrd any . pre.-iouis %ear in tllr hir•t4wy uf, ccNYr C.iNnlmnc: Net valise uf balr% fur the .•ear :IrINNnIIY•d tYt a53(i.,iU1(iA7 :. an inrrc :a•c tlk 141' ><ak•,• of'8": 13.; ,:1'.,t^.. # part cpf'tliia inrreasr in dollar wlr- r.an br at trihuted to the 5.4c'o increase in tier prive 4d rigarettr,: w hich waw in effrn•t dirring tier la+t fi+e rnonthf. of tier yrar. The increase in t11r unit -,alr: of tier (':iNnlrany'a Ikandit .d rigarrttr. i,r rr tiir prrs ion>i yrar w ax G~'3r'p. DiN• t+p tlir hi; hrr I+rii•r. paicl frw the last crop of' flur-rurrcl l trpharrep arud to tier larger ,.lu•ks< of'Iraf tubarctib .,n hanqUat ttirrnd of tlie cear. there waoA an inrreaw o.•rr last crar in tier invrntur.• .•alYYr uf Ira( Iidwrro arnmnating t1) 846„7(qt31_. This inorrasY•d incextrnent in leaf tuharru is rYxc,riilemd ad.ia+alclr in onlrr that tier expanrling Gu,cinerccr of v1Nrr (wwnpan+ rnav Iee pr+itrc•tircl with an, aclequatr utYx~k uf pmperls aFeYl tnl.acrYoo: As< in, the past, inventor.• of Iraf ttfbarro is rarrircl at a+eragr cwst, new a+erage,r loeing astahliwhedlearh numth a,, hurrham-A arr added ancl as uuinls are deducted. Thr enst o('lea['toLaee.c,, including applicabk expenr<e., usY•d,in t!k prY.durtw uf .cxrr C:iau. I+anr .o1d durin=, the rear 1948 amounteYl tY+ arprncimatelr l1b.3.1MK1:(1(M/. (ntrrnall rrvennrc eariwe taxes of the Ltnitrd States anYi of'ot'11er ecxmtrie>< where ,crrY•h e.criw taxrf arr paid l,a thr GNnl.anr and inrlndlyd' in itt selling Nricx amounted to about lt.:(v.(lW.(IU(1. These arr the two major items in thr roatt of products manufarturedland oold brc your Cwmipany.. !

, . Bo,a-war a/lditinnr< and!irnhrl~+rnlrnt~. tro vlanti. aoM rrl}/ilonlrnt Ila%r runlinur~lidurin~ 1'118. 'll+ r Ilrw nnrlrrn rigarritr (an•torc at 1)urhaln. \+wrh (:arvslina. 6 nraring ,r~~nlldrtiiNl and .limnl11• Iw•'rra4Ic few rM•rupalN•v within a frw rnnnt'h~.'I•Ilr 1/11't.l'lnll l,ropl;ranliral6, fGw calwtal rtlM•no liturr+. 1ib prop.i+lo- i11rrra~r/1 fyl•ilitirc fiw handlirl~ leaf t+sIoa~•Cn„ IINNIrr/117..7111N1 uf'tlsr ~•igarrtrr nlanufar= toIring Illanl at I{irtilmnnl. 1 irginia. whii•h will rr.uli in in+•rr•rwd raloa+•il% alul luowr r~ ~.m~nliral ooIwratioml anol thr rrertiu/r uf a~.•par•rtr and alto~rtber IncMlrrn Ul/ilrling fw tlhr rrwarch lab- o•ralbrio. Surlnr.IN•mliiurrt. in 1'1p1-11`t:i11L iru•huling tllr I+olnlilrtiurruf tlir nrw ri., urrttr fwnrow.' andI rfipip/lu•nt. nuly alrluunl ln a• II11NtI1 a~ i97.-i1M1,41tN1.. I:r~ auM+ /rlulrriat: wrr.• nnt a.jilablo• Juring rb+• u;Ir .v..r: it ua• un~ r...:rn tr- oL•Ger u••r,1r4 r\Iiat1--HNli.of priMll/rtiinl fari6tii•x with rr.-l/lrc trs Luildin;:r andl ryuilnurnt: Tl/e rrprt of ,//u•h faltllitlrlt aliole`II `Illrr' (Ilr' war'arr1MI/r%crol tMiIw ' a1moMlllall allll. thrre.flooC. In lw/Irr'th. IIar11aII% IIN•el IIIip; wilUa1/tN1 %'Mlr131N/r11 of.D/rei•l1MRllaoL llri•/IMd it allvIssalslr t/o 1H•t aiiNlr cNlt.ioflwllrl/lil*111 1y-1K ann atllOunt f/f $')..nlm.lm.w,INI•h 1* oIr%rT11N•/1 Intllr' IlalarlrRSIlret'. aso ••A1sIKi/1or1atlMrni GK Fs/•r/Ut/1YY (..M:1%' of F1\r/l:1'~><rl!<.~- Yrimi%iorll feK drllrrrlatNN1 /•harglYl arHillbtimNNllr' w.illl /uN/t/llue. t11Is11n1aiIr fNl'l tI1HI/asIr nf thf Qlhatl . llf real Crtatl•e all/l bIIIIiI1ng1C andl nlal•Illnrrt-. LII/I 414luiplnrnt in aryv/rdbll~r witli thr Com11aac•s ua1•r111N1lirv. Rilnk liwnol al IIer %rar rrul anluontrdl tu g~8::><NI.IN(10. whirll. in tlie mlrnlal rlNlrowofrvent'. will ba'gradl/alls curtaiNd!aftcr Ihe Grp.t quartrr an, t Ipri..r tip lhr nrxt leaf bu,. iil- M••rmnl. 'I'l/r IoNIw-f.+rln 8nancin;, wllirh was rffY•rled 1o.- %'unr Culnll•rny in 14:1.i'and 1916. thrnnmii Ihr w/lr (of 2sit:c Sinling FnnJl I)1•brnturrx tt) Keecra) inr<ur•rnrr rnlnlmani". tn8cabrr wit 1 tllr manrl-hs• ior rr.r.lcin,c,crrdil ule tn t'lItt1.INK1.lNlp at anv onr timr until Au.14rxt. 1950, with aI nurnlM•r uf ils drlN..itarn• hanl.r. hs+ w+rrn+til adrquatn to take rare of tl/e nuorlryrequireltmltlr of )rnlr Cunl. paur.-. Ilowe.erI in % nw• Uf 1hr hi~lier hricr>: pai~lifi~r lraf troharco uut of tile last cr+/p an~l tiir unerrtaint.; a,6 t+e fllturr prilCrRaOll relluirenlente: voourli(Iard of @ireRtafst i%now-gi.'inF ciNmilI- rraliOlr t/10 t4mM rrl1lily fllanring. andd anannanlremt•nm regardinFthiv& nlay heW eslleirtrd withinn a frwIn/mrh!o.. Midandsl Laid sMI, (wNmnun Stock during, 1948 ' conpoirtedl r/f fi/ur quarterly di+•iJrndp, of S 1.(w) iK.r ullarr and arrcxtrai di+•iilcnd of E1L(111 per Rhare, roalcinga total for th..•rar of'85.1N) IN•r rharr c4pnlpanyl withi R'I.:dl prr s:hare in 1!9-1'7. liesprctfull.•. J. W: ANDItER"S: PtFeaiiea. • New Y.>irk. P1i, Y.. Jaauary :a, 1939. 3

OFFICERS . hrrEident Viee-Presiden t 1`ire.Yresidkn t'. Vice-President 1-ire.rrenident. Vice•I't+esident & Treasurer . . . Gv+retar. DIRECTORS J: W. ANDRBNs W. A. Bt.ot+:rT J. E. FAttLCY B. F. Fetr C. B. GASY J. C. Hc rcDLeY, E. S. I'cTetts J. E. SCAL63 G.W. Txoxpaox ZAcw Toxs Jl N. WEt.LxAN II. E. 1t'ntTt.. EXECUTIVE OFFICES 630 Fifth Avenue New York '!0, Y. Y. TRANiSFER AGENT' C81'fTRAL AAltQrMI BAHtt A!'tD TRt;sT Co. 70 Broadws New York 15. A. Y. R!EGIS'TRAR' Tas NATIO!fAL CRY BA!i[' Or NLwr YORE 55 WaU Street New York IS. Pii Y.

OPERATING AND FINANCIAL SUMMARY 1948 1947 Net .•alur of .alrs.......... . `-'- - .. . . ........ ............... ..... _., ....LJJ~L:lU~I~'~ ~ =513. 7 -, 1,4=' Peofit from operations ..................................................... .. 53.371.967 41,828:304 Percentage of ' net saics :....................................................... 9.6_ ~''o 8.14% 1'rofit before inrome and tranchise taza~ ....................... 49:4-3,398 38.SW91a Income and fraiwhise taaes................ ............................................. =0;16"..2~t: n 15,660,297 Pro6t before preferred diiridends ...................................... _9.".61:121 :«900.691 Net income after preferred dividends ............................. =7.799.934 . :1',439,504 Percenta8e of net sales ........................................................ 4.99?'c, 4.17% Net incotnepershareof eomrnon stock ............................ $8.86 $6.83 Dividbnds paid! per share of common stock .................... 1S~.00 $4.50 Carrent' assets ......................................................................E40sS.3:7,111 Current liabilitiea .................................................................. 108,: i 8;441 R a t i o : . . .. . ... .. .. .. . .. . .. . . . . ... .. . . .. . . .. . . . . . . . . . . . .. . . . .. . ... . . . . . . . . . . . .. . . .. . .. . . . . . . 3.7 to 1 Fnndled debt .......................................................................... 1:7:886.600 Capital stoIIle ........................................................................ 99,"97,3~.73 Earned surplus end' of rear ................................................ 86.195,8L'a Appro:imate nuaobeeof stodtiiolders :............................. 27,900 Appemciatate nnmber of regular employees .................. 10.000 5 i351.276.47.2 61,598.:•6N 5.7'to 1 1.7.886,600. 99.297.S.:S'. 76.080.586. "8,300 10.400

. LIGGETT & 31YERS T7 CONSOLIDAT'ED BALANCE SHEEf- AS'SE'TS' CUuacns AsssTs; Cas6 ................ ....................... ...................... ...... . . . ............................. S 13.8fN. 7 37.0 7 Accounts receieabk, customen ........... .......................................... 18,672.,{60.45 Accounts Koeisabk, otbeu :........................................................... 598.051.53 Leaf tobacco, at cost........................................................................ 340.9. 7,831.66 Manufactured stock and operating supplies, at eost .................. :8?f+y11030.35' TOTAL CtrnRz:rTAssm:........................ ....................... 40_':327:111.26' OrNpr Asscn: Land I and buildinFs.......................................................................... 18:8U.680.74 Macbinerc and equiproent :............................................................. 24. 742.435.90 Less reserve for depneciation :...................................................... . Brandt, trade-marks and good p•ill ................................................ Stock in subsidiary oaapan. :......................................................... Stocks in forei=n ~ tobacco ooanpanies............ 54:476.164.08 43.591.116.64 24.147.678.68 19;443,437.96 1L00 4;39.005'.00 Len n.es.e ..................................................... 4,473:163:08 3,001.00 Notes eeeei.abk, due seciallf........................................................ 487,5D0.00 DefereKd eLarps :........................................................................... ".34'1.966.26 Tar.r.,Orusn Asssn .................................................... 2:,714.911..2 S' 16.367d,06.28 17,7_6.084.14 678.458,69 `94.219.489:85' 2..M.834.04. 3;1.2i6.4 " ...98' 15,310.706.56 19;3.3.026.94 34.633.733:50 2-0. 7 67.114:06 11,866;619.44 1.00. 439,005.00 3,001.00. 873.000.00 1.786.811.66 14,970.438.10 i423.042,02L48 3366.246.911108 l l

'O1BACCO COMPANY -DECE',IiBEH 31, 1948 AND 1947' LIABILITIES 1!948' 1947, C:IJR'R[aT LIAaILITIeS: \ote" payable to banks ................................................................ .i :8,300;(t(f(1.ttU 8 36.tM)0.000.00 Accounts payairle .............................................................................. 3.187, i 1_"G 3.340.04'+.8S Dividend pa,zahle:on preferred stoelc ............................................ 3(w.»''96.75 3G5'._"9G'.-,S Accrued interest on bonds and debenturea .................................. 1,198:138.32 1',19lt.1318:32 Accrued taaes .................................................................................... "S;0q7."74.38 2 0.695.066.78: ToTSt. CtnmQwr Ltaerunes :....................................... 108:.",78.,t~-tll71 61.5!Q8.569.70 Fc!cnsa Dzss: 5% Bonds, due August 1, 1931 ...................................................... 12.886.600.00 1..886.600.00 2Sf!~'o Sinking Fund Diehentures, due August 1. 1965 ................ 40.000.000.00 40.000.000:00 "-3i% Sinking Fund DeLentures, due October 1, 1966 :............. 75.00N1.000:00 .3.002:000.00 Tora. F~~nDsn Desr .................................................... 127.886.G00.W 12'.886.600.00 Srsqat. Rasimms :..... ........................................................................... 1.383.SR0.33 1.383.M.33 Anmorteuno:r roa ExcBSStva Coars or Frxeu Assen:............... _".000.000.00 CAPITAL SroCtc: Preferred 7% eumulati.e, pac value $100.00 Autbori:ed 1 341.398' shares. Iswed ?.25.141 shares. In treasury 1MWsbares._ ............... 0.874:100.00 0.E74.100.00. Common, par value i2a.00 Audceised 4.000,000 aharea. Issued 3,136,939 shans:......... 78.423,475.00 ~8:433.4?3.00 Toar.z. CrrtrAL Srocr .................................................... 99.297.575'.00 99,.'976575.00 EARso Svrtnos (s.w stataasent amexed) ........................................ 86u19S.823:44 76.0®0.586.05 i425,042.022:48 1366246.911.09 7

STATE:IIENT OF CONSOIIDATE'D I1C0?11!E Fon rnr: 1'eARS F.'%uEn Dr.cFwxFR 3L 1948 ' AND 1947 . % ; Y 1948 1947 NEr SALts :...............................................................................................8356 ,Sf16.81;.:_ :a13:771.4__.3_ Cost of sales, selling. administrative and general expenses . 301.198,713:04 470.578,931.86 Provision for deprecia tinn ............................................. ............... 1j, 36.16.5:31 1.36 i.18.i:G" 50'!.93a:R8Nr,3S 4..:1.943.11::AR PRorrr rROx OrsRAno*cs..... _....... .................................. ..... ............ ... 33,37I,967.37 41,828.304.84 Intuest'and dividends reeeived ...................................................... 355:910.81' 379.651.94 Otbec iwoome ..................................................................................... 29.a33:7'' 29: .317.42 395.3-16.53 67...169.36 53.957,313.90 42.300.4-s 4:20 Iaterest and amortisation on funded debt. .................................... 3,686.517.501 3.686:517:50 Interest on bank loans ....................................... _............................. 931.699.73 .47.:1.:02 Other income charges ...................................................................... 13.698.64 3~.326:12 4.533;915.87 3'.939:535.64 I!4CODtE' DE/'OR6 FCDERAL A!fD SSA'TE TAXEf :............. ............ ........ 49.4"_3.398.03 38,3i60.918.56~ Provision for Federal income tax .................................................... 181004.906.4i 14.079.172.13 . Provi.ion for State income and Ganddse taxes ........................ _.137.370.19 1:b81.03.S:2i 20.162.276.64- 15.660.2.7.38 . Nst Itr,oDUr roe. s= YsAR:..» ............................................................. 29.261.12139 =900,691.18 Dninstrna Ox Pwsmasn Sancr-:7.00 rsR SuARL...._............... 1L4+61L187.00 1'.4161.187.00 Nrs h.ooas ArrsacA.Ls To Cotrnotr Srocc ....................................i :7.799.934.39 O. = 21.439.504.18 8 _.___........s--- _ ~.~r;~..~:,... ,..._ . ., - - --- . ._--- ~._ . ----y-

. a ,. • STATEMENT pF' CONSOLIDATED S'UR'YLLTS' FOR 7i1E YEARS'EKDM DEf.EMRE/l 31, 1948' AND 1947. 1948' 1!947. EARNED S;UR'FLi1t AT'BEGlDi\1?IiG OF YEAR .......................... ..............f16.W1JR6.nJ 1I(8,7Ji..30i3i ADD: NET INCOME FOR TnE Ye.R ................................................................ _'9461.131.3q _~900.691.18 10S.341.707:44' 91.63 7:998.Sa DEDCr.r: CAstl DrrtDExDS or $7.011 rER SHARE o~l FaEFERRED STOCC...... 1:461,187.00 1,461,187.00. CAsli Drll IDE!IDS' 07f Coxxox Smcc $5.00 per sItare in 1948 and . 8•1:50 per share in 1947 :..................................................................... 15,68a,695:0Q 14;1116 "':S0 -,. APP'Rf/PR(ATION Fl1R' EXCE3sITE COSTS OF' FIXED AssLTT3............ 2a00(Lfllb:al, 19.14:i.883.00 15.577.412.30 EARNED ScRrLrs AT Erp or YEAR (ree note) ................................f 86:195s"1.i.44 .:76.060.586.05 NOTEs (,'.d.r dM taRat J tM 1sJ.wtrrs es,r.ei.g e.a` irw o['2%ro Sirki.f,F..d Udiwil.ns 83tA9d.960.i7, .1 ..rs.i ..qis isnpeMtd' a: te'..n.rt of eadi &rW..ii a. Coro. Stock. 11mis li.itai.w de.. .a app1y to .1.elt N a. Cao~ Stxk.,.ar dos it n.Met MTmma.f diad..k e. Pn7w.d Stodi. 9

..v- .,r. 0 W REPORT OF INDEPENDENT CERTIFIED Y'G'BLIC ACCOUNTANTS To the Directon and Stockholders of Liggett & 1lrers Tobacco Company: , We have examined tbe coiwdidated halamx shret of LigSett dM ven Tobacco Company and, its wholly-owned subsidiary (Turkish leaf' buying organization) as of' Deeemlkr 31. 1949 and the related statements of consolidated income and earned surplus for the year then; ended. Our examination .ras made in: accordance with generally accepted auditing standards„ and accordinFlw• included such tests of the accounting rerords and such other audi'tinQ procedures as we considered necessary in the circumstances. In our opinion, the accompanying con*elidated balance slmet and related statements of' consolidated income and earned ourplus present fairly tLe financial powition: of'the cwnpanies at December 31. 19#B' and! the resultsof their operations for the year then ended, in conformitw with generally accepted accounting principles applied on a basis t+onsistent' with that nf'the preceding year. ItAS!I:1Hiti & SELLS. Certified PuLlie ArYwuntantw. . t St. Loris, Mb. January 19, 1949.