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ANNUAL ''REPORT LIGGETT & MYERS TOBACCO COMPANY DECEMBER 31, 1949' WITH CONSOLIDATED BALANCE SHEET AND~ STATEMENTS OF CONSOLIDATED INCOME AND SURPLUS _..

11 PRESIDENT'S REPORT TO STOCKHOLDERS . To the Stockholders.'. '17ierre is submitted in this report the statements of the Gnanciall position and operations of your Company: including its wholl.•-ow•nt+d subsidiary compan;r, for the year ended Derember 31, 1949, with comparative figures for the previous 1year. Embodied herein is the audic report of 111essn. Haskins & Sells, independent certified public accountants.. Net profits for 1949 applicabk to Common Stock, after deductiona for depreciation. interest on indebtedness. Federal' and State income andl other taxes, and dividends on Prefertrd' Stock, amounted to 8:8.103'.,iOT. or 8Z1'8' pcr share ow the 3.911.521 shares of Commnn Stock outstand'+ ing at the end of ihe.•ear. The comparable net 1xoGt,t far the year 1'94B'amounted to i.7 ~,i99.934; equal to 8"+.10 per share ificakulatedl on~ the number of shares of Common Stock outstanding at the end of 1449, and to $8.86 per share un the 3.136.931) shares which were outstanding at the end of 1948. P••arnin8s in 1919 in rclation to dullJrr sales were sumew•hat better than in 1a-tR lRut still conu;idkrablir below the average for the Rrr-war period. 1936 to 1940. Dollar sales for the .•ear wcre slightly in excess of those fim the 1we.•ious year. 1et sales for 19419 amountcd tu $a5.:.733.4331 an increase of 81r_6.W over the 1y418 sales of BiSG.306.83T. All of the increase in dbllar saks is aecountedlftx by the higher price fix ciaarettes which prevaikd for the entire rear 1949 Gut w hich w•as in effect for only the last five months of! 1948. There was a decrease of'3.6~'o in tllr unit sales of the .Goml?an;v't brands of cigarettes as compared Nith the pre.•ious year. enonn than half of which decrease was in, export sales. It is iinlmrtant that your Company at all timeE carry an adequate stock of properly aged leaf tobacco. Prices paid for the last crop of' tobacco have not materially affected the average r in+-entory lrrire per lmund of total stock of leaf'tuliaciM on hand. 7be investment in leaf tobacco at' the end of 1y-19 w-a• about 8:.800:0001"t than at the proviI yrar=cnd! Fidlbw inF past prar- tice. inventory of leaf toLacco is carried' at average cost. new averages being estaLGshedl eaeh, month as lurchases are added and as usings are deducted. Tlx principal items included in the cost of the pwductr manufactured and sold by your Company are leaf tobacco and internal revenue excise taxes of the United States and of other countries where such excise taxes are paid by the Company andlincluded in its acllin8 price. The cost of' leaf tobacco, including applicable exCenses, used in its products add' for the year 1944 anaounted to approximately E163,000.000. The payments Gr the Company of internal revenue exeise tues, applicable tis its products sold during , 1949, aamounted to about E2i3+000,000. 0 I +cew~:x. ~.-

. . . , Capital expenditures were Durham. North Carolina, which tional facilities which have beet separate and I modern buildin8, fiu manufacturing plant at Richmo It is estimated that capital ezre ment pro8ram w•ill amount to ah To provide addit ional work of (ommon Stock tlir right to jo at the rate of'one share of Comn scriptions for :7a,5V shares ..ci The difference hetMeen tlx offer Lj e CL JQ,&t,L s,,,~es_ ~~'~I y 7 goW ~' ctte factory at •cspect to addi- e erection of a of tite cigarette iplMrd in 1950. I.nt anJ eyuip- d to itR hr.ldcrs (:ommon Stock then held. Sub- to 338,:29.10U. 8'_'a per share, amounting to E19,3W,i50, has bern treatttili in the accompanyine, Balance Sheet aOL "P.id-in Surlaus." The net Proceeds from tlNr sale of'the Cornmon Stock were applied to the reduction of the Companv's hank loans, which at thr cud of 1948'amounted to E768,a00,000'and& have bcen reduced to 5_":w10.000 as of the end of'19-14: The ratio of current asRCts to current liabilities at tiie .•car- end was :a to I compared with1 317 . to 1 at the end of 1948. Inasnntch as there are presently unntsurd only 88,479 shares of' tlte 4.000.000 sham of Common Stock now authorizedl it is consi+leredl desirable to amend the Certificate of Incorpa- rationof'thrConypam an as to increast tho Company'a authorized Common Stock (par value $25) froau a./10U.0(10 to 5:01MQ,0(ND 1 shares, and a resolution to efrect such amendmcnt, will Ik presented to stocklwlders at the :lnnual \liecting to Lc hchll on March 13, 1950. While there is no present intention of issuing any of the additional shares now proposed to be authorized, it 6 believedd that such an increafc in the autlNoriiced Common Stock shouldl be made in order to enabk the Company to meet .•ariuua lm*sibk contingencies which may arise in the future andl for ..Itich the issuance of shares may le deemcd advisable. In, adidition to paying four quarterly dividends on the Common, Stock in 1919 at therate of $1.IN1 pcr, sliarc; there wax paid on December 1, 1949, an eztra dividend of'81L110 pcr nhare, mal.ing a total fiir the year of 85.00 per share. I Respcctfully , J. W. A\DNER'S, President. Ke.r York. K. T.:, J,anuarr "_"a, 1930.

OFFICERS J1 VN. ANDkEWs W. A. BwUNT B. F. FEw . G. W. Tuomrsox J. N. WELLatAa H. E. WUIffE . ZA cn Tbots . President . . . . . Vice President . . . . Vice President . . . . Vice President . . . . Vice President Vice President & Treasurer . . . . . Secretary DIRECTORS'. . Ji VI': A':iDaE.r•. W. A. BLOL*KT. .I. E. F'AaLEY II: F. F etr J. C. III;KDLEY W. t.. PtiRlt1 1,:. S, PETERS J. E. ScALEs G.W. Tuoxp•o. ZAcu Toxs. J. N. WELt:xAN IL I:: Q'mTE EXECUTIVE OFFICES, 630 Fifth Avenue New York "_0. N. Y. TRANSFER AGENT CE!iTwAL HA:Qo1`zR BASt: AND TRCsT Co. 70 BcoadMas New York 13. N. Y. R'EGISTRAR' TIIE NAT1O!rAt. CITY BAN[' 01' r1'EN[ YORf:' Ja R'aIi Street. Ne.n York 15. N. Y. 4! • ~,~~~w- . .

OPERATTiN'G AND FINANCIAL SUMMARY 1949 1948' Net •al'ue of'srles .............................................................. .i537:733:13a f536,a0(i,847 ProGt from niN•rations ........................................................ 53.519.374 53.571:967 Percentage of net sales :....................................................... Profit before income andifrancUise tase. ........................ 9.Sy;a 49.324,107 49,4.3:398' Ihcome and franchise tases .............................................. 19.757.411 30.1G=,: 7. ProGt' before preferred ridends .................................,..... "9,afi(i.lA4 '9,.01,1.". 1..1 Net inrome after preferred I dividends :............................. "8,103.30.: ' :7,799.934 Percentage of net salea ........................................................ 5.0470 4A9o"o Net ineome per share of common stock............................ S7.18 • $8.86 " Di+idends paid iper share of'common~stiocl- .................... $3'.00 1S'.00 * Cakulated6 an 3.911.5:'1 sbare. far ynr, 1949 aad' on 3.136.939 .hare. tar vear 194i. Current assets ......................................................................3389.98_.09.-, W_.3_:.111' Current 1iaUiliues...................... ........................................... a1.7:1.70~'' 108.2:8,441 liatib...................................................................................... ...................... -.:S to 1 3: -. to 1' Funded de6t .......................................................................... 1L17,886.G00 1C7J88G.G00. Capital stock ........................................................................ 118.6G..1:', 99.=9: .573' 1'aid-in .utTluf end of vear :............................................. 19:364.550 - Earned surplus end o[.ear ................................................ 95,a18.309 8G.19S.8'45'. ?1ptro:imate number of stoeklioldees:............................ 31:300 .7,900, Appno=iautr number of regular emplo}^cea .................. 9.b00 10,000 5

1'I LIGGETT & M'YERS' T CONSOLIDATED BALANCE SHE T•. :1SSETS 194y ~ 1948 Cvtutt:xT Asst:TSc Cash ..................................................................... ................. ............. .3 1 4.7tt6;`(9.10 Aocounta reaeivable, customers :..................................................... 17.219_099.33 Accounts receirabk, others ............................................................ 530,1; 7.25 Leaf tobacco, at cost .............................................................. ......... 333.1160.538.19 Manufactured atock and operating supplies, at cost! .................. _:1.383.813:77 TOTAL C[TRRENT A'SSt:TS ................................................ 389.98..(NW.86 Oroaaat Asst:rs: Lan& and buildin8s .......................................................................... _O.GR::.ti'fi.0.1 11lacbim•rr and eqttipment:.................................................. ........... Less resrrre for depreciation :............................................. IIrands, trade-marks and good will S %'tocL' in partly-owned subsidiarr companr ................................ Stocks in foreign tobacco companiea:.......... $4.476,164.08 Less reserre ...................................................... 4.473:163.08 Notes receirabk, due serially ........................................................ Deferred eba r,8es ............ . ................................................... ............. 28.929S.508.8 3 49.611.38l188 =i.643:;1t.ti'.88 23.967.87.9.00 1.00. 439.005.00 3,001.00 125.000.00 210(A:883.5t l ToTAL 4nttzR Asstsrs .................................................. "616t13.769.34 6 . E416.S86.84:.aW i 1304,737.01 18.672.460.45' 598,051.53'. 340.9" ;83'1.66'. .8..64.030:55402;327.:111.26 ! 18.848.680.74 24.742.435.90 43.541,116.64 :4.11:.678.(d1 19.443,437.96 1.00 439,005.00 3,001.00 487.500.00 :.341.966.26 ww,.,i14.911'.22 :4.5.042.022.48' .~.-=..~ :. .

~ ~ _; .s.,.. . 'OBA.CCO CO'1IFAnTY -DECEMBER 31, 1949: AND 1948'~ LIABILITIES 1949, Ct•cttExT LutstLtTit::: Notes payable to Ganks ................................................................ .i 27.250.000.00 Accounts Pa;raLlb .............................................................................. 2,.324,319.".8 ' Dividend pa;raWe on preferred' stock ........ .............. ....... .......... 3Gi.'S9G. -, 5 Accrued I interest on bonds and I deLentures :................................. 1.1y8,1S8:321 Taxes rayable and accrued ............................................................ 20.633:4_8:"9 TOTAL CIIRItE!iT LIADILITIES :.......... ............................ 5167 i 1.i112;(14 Fi•.nEU DEnr:~ o% lkaids, due august L 1951 ...................................................... 12.88G:G00.00 _s a% Sinlcin8 Fund DeLentures, due August 1. :963 ................ 40,000.000.00 _3 cc'a Sinl' in8 Fund llcbentures, due October 1. 191iG:............. 73.000.000:00 TorAU FrNOEU DEaT .................................................... 127.88G.G00.00 SllRPLt; S IZ ESERV1:S: Special rr+crccs :....................................................................... 1,383.580.33 :Cppropriation for cxcessi+•e costs of fixed assets :..................... _^.000.000.00 'PorAL Scsrut:S ItESeaTES. .......................................... 3.3R3.',80.33 CAPITAL STOC[: Preferred l -, % oumulbti.•ei par value S '100:00. #uthorised 3d1 3ttit rhares.. lstued M"3.1141! shares. In treasury 16.400 sltares .................. _0,8;4,UMUANt Common, par calue $=5.00. AutlMrised 4.000.000 shares. Issued 3.911.5_1 shares 19a9 and 3,136.939 shares 1948:..... 9;,:R8.0.i.0IY To'rAL CAPITAL STOac' .................................................. 118'.Gb".1-'5.00 Ntu-M ScterLt:S...:..............................................................._.............. 19136#.SS0.0i0 + * Esoas ora par .alne of Com.o. Stcdc .+.Wt is 1949. .. 95.5 18.309.43' EAttNtto: St/tercta~ (see statement annexed) ...................................... 1948 : 78'.500;000.00 3.187.7,12..6 3Ga,.''96.75 1,198,158.32' 23'.02: .27438 108.278,4±11.71 12M6:G00,00. 40.000.000:00. :3 ~.0011:000.00. 1 "_ 7.8isCi.(,00.00 ! 1,383.380.33 :.INO0.Mq.110 3:383:180.33 20.8.741100.00 78:423.4'3.00 99.29i.575.00 86:195.823." 8416,386.867:40 $42.i,042.022.+{8

ST'AT'E:11EtiT OF C'0.M'OLIDAT'ED INC'O1iE, Fott Tee YEAtts ENDED Dtretxatat 31, 1949 AND 1948 I . 1949 1948 ' NE'r Sat.is ................................................................................................1aa: ,:33,#:33.1'I $33G,a06.84 7.73 ' Cost of saks. selling. administrative and'8eneral expensea........ 3C12=",3:Snu.(IG 301'.198.:13.04' Provision for depmiation .............................................................. 1.~/C,O.S4y:G3 1. ' .3G.1i6:,.31 504.214.058.64 S0'r,934.880.35 Pe,ortr rttox Orsttxrso,%s ............................................................ .......... 53,5 1Q,3r~.:-1!4 3 33.;:1L967:37. Interest and dividends received ...................................................... 3t13.33/1.11 3Sn,910:81 Other income :.................................................................................... 31..iiMLG:' 29.435.72 33-1i83-1.73 383:346A3'. ;3.R:.a:.1tu.1R 53;95;,313.40 Interest and amortizatiowon fundedldebt ................................... 3,('8Ci.S1 3.G86."s'17.i0 Intrrcm on hanl, lowor ......................................................... ............ :63,+1:9.311' 831:699.73 Other income charges .................................................................... "9adl4! 74 13~.lA8:li4' 4.530.101.62 4.333:Q1'5.87 0 Pnortr aepotes Ixcoate AND Ftcarcutse T.xe• :.... ....................... .ly 3'_'-1.1A::iG -19.423,398.03 Provision for Federal income tax .................................................... 1"..1137.333.33 18.004.906.45 Pro+ision for State income and itandiise taxes :......................... :.2:11,W1..4 2.157.37019 lg.: i::a13.3: "0.1(t.'~.~6.64 NET IxCotte rott snR Ytsn .................................................................. :9.3if,6.613'.94 _'9..61.1_1.39 DmoE!cos oat Ptst4rdtttsn STocs-S7.00 rpt Sa.ttt: ...................... 1.461.187.00 1.461.187,00 NlRT I!ico7ti ABt•t.tcNntaS To ColtMOR SToc[ :...................................R -8.103.-WO!u g 27.799:934.39 8'.

STATEMENT OF CO~'SOLPD~ITED EARNED SURPLUS FoR TIve 1.EARS ExueD DeeemRtR 31, 19aW AND 1938 19 -~19 19.18'. EARYiEU 1vRrLts .r llisccxanc oF 1".}.AR t R6,1n,.R•'S.- " 5 "G.080.a8i6,OS. E ADD.'. • NET'1nQof/e'EOR Tlle'YEAR `41 ifil+.("UM1 "!9961L121.39 115.762.114.,13 105-W:7nt3•1 Ueuucr: M CAsu l)1vjue:.ns oF t:.(IlY rtR Sn_ute o. I'ttt:Fh:KRelr Srocl:... Cssn Dtvlus.~ns ox Comalo% STocu 1.1G1.18~.W 1,461.187.00 8o:0(I por share in 1918 un 3.l:IG t)3t/ .Ilares 15.611. I.G05.0(1 $1.00 1Mr rhare in 1KI Iy un 3.13G.t)3y sllares 3:136,1/31/.W. E•111N1 prr sli•rrc in 049 on 3.y11i:1 sharex 1i.h/6.(lli'1.00 :IrrRnrRl:.TIOr FOR EXaES+IYF C().r: Qr FtCt:p ksBri - 2.W0.(IM.l10 _il;2111.210./1I' 19.145.882.00 EARNED SCRrLL•S' AT END OF TeAR (See n0lc) 0 95.;18.31ty.aB S' 86.195.8_3.•1•4 MMMIMM \t1T'~E: Cnder dw t'rwts o( tlK (oknture rncerinG ra.•h isue u(' _!ye;p SinCinR Fund Ukhenwtts !,'.MA9R.WA/.{; e(! ara.d wirplrs i. .eMt.ieted! ar tu pa.•wtrnt .J` raoh Ji.•ideAd* on (ims.wm at.sd.. Thi. Gtttitrtion, Joa wnt arplx tn aoek diriJaiulv on, Guwnwm*ur•l. nrK o4ws it rrstriet rs.ewnt of diviwknds oa 1'refe~ml Stock.

REPORT. OF INDEPENDE~NT' CERTIFIED PUBLIC ACCOU'NTANTS. To the Directors: Stockholders of' Ligptt & Myers Tobacco Comp.nr: We have examined the consolidated balance sheerof liagett dt 111Ters Tobaoco Company and its .eholly-owaed subsidiary (Turl-ish leaft buTinr, organization) as of December 31, 1949: and the relsted statements of' consolidated income and' earned surplus for the year then endJedi Our examination was made in accordance aith, generally accepted auditing , sti.ndards, and accordingly ineluded such tests of' the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the accompanving consolidated lialhnee sheet andl statements of'consolidated income alul earned surplus present fsirly the: Gnanciall position of the companies at DecemLer, 31, 1949 and the results of their, operations for the year then ended, in conformity with generalHy aexxpted, accounting principles appliedl on a basis consistent with that of the preceding year. IIASI:INS & SELLS St. 1.ouis. Mor JaAwrr 19,,1930.