Tobacco Documents Online

For the second successive year the British Empire Cancer Campaign reported that experiments with tobacco derivatives and laboratory animals at a number of leading research centers failed to produce cancer either by prolonged painting, injection, or forced inhalation. Meanwhile, your Company, along with other manufacturers, leaf growers, dealers, warehousemen and cooperatives, continues to support the objective, long-range research program of the Tobacco Industry Research Committee, now in its fourth year. The Company's own research on the composition of cigarette smoke, now in its thirty-sixth year, continues in our Richmond Laboratory, supplemented by direct grants to leading re- search institutions. Industri,*l Reach;or Loboratories, Inc. An important development in your Company's research program took place last year when agreement was reached with nine other leading industrial companies--none of which is engaged in the tobacco business---to build and operate the first nuclear reactor to be owned by private industry for research in industl~ial and humanitarian fields. This venture, known as Industrial Reactor Laboratories, Inc., is being jointly financed by the ten companies involved. Located in Plainsboro, New Jersey, the reactor will be used solely for research purposes, and your Com- pany will have private space in the facility to work on its own projects. Our Research Department will be aided immeasurably by this opportunity to extend its research on the composition of tobacco and tobacco smoke. Personnel Richard J. Boylan, Vice President and Director of Purchases, James R. Coon, Vice President and Comptroller, and William H. 0gsbury, Assistant to the Chief of l~Ianufacture, have retired since the last Annual Meeting of stockholders. James F. Strickland, President of our leaf buying subsidiary, American Suppliers, Inc., retires on February 28, 1957. The Directors gratefully acknowledge the long, conscientious and exemplary services of Messrs. Boylan, Coon, Ogsbury and Strickland as executives and members of the Board and regretfully report their retirement. Chr~nges in Article XII of the By-Lnws As the result of a study made during the year 1956, the Board of Directors is recommending to the stockholders a proposal to make certain changes in Article XII of the By-Laws, which would extend the benefits of incentive ID "['1542"10432

compensation, heretofore provided only for the President and Vice Presi- dents, to a broader Management group, and provide more realistic incen- tives than those presently offered by Article XII, without additional cost to the Company. These proposed changes in Article XII are described in detail in the Proxy Statement and are being submitted to the stockholders for approval at the Annual Meeting. 5tockholrlers" Annua! tlleeting The Annual Meeting of Stockholders will be held on Wednesday, April 3, 1-957~-F-o rmat-not4ce-of-t-h-is-raeet~g,--together-wi-th-the-p r oxy-~nd-pr oxy statement, is enclosed with this report. I should like to acknowledge here the many letters and inquiries relat- ing to the Company's affairs which I have received from the stockholders during the past year. Especially gratifying are those which express a sincere loyalty to the Company's products and an interest in the promotion of our brands. In closing this letter I should again like to express the appreciation of your Board of Directors for the cooperation of our customers and the loyal service of our employees which have made the year's results possible. PAUL M. HAHN President 11 T154210433

ATA OPERATION5 GtAN£E The Company received for goods it sold and from Dividends, Interest and Miscellaneous $1,083,389,000 This is how it was used or set aside: Revenue Stamps and Taxes Tobacco (including applicable expenses) Wages, Goods, Services, etc. Bond and Bank Interest Dividends to Stockholders Earnings Retained to Meet Future Needs • $273~867,000 $180~044;000 $ 9,133;000 $ 35,730,000 $ 16,3i8,000, 25.3% • 16.6% .! 12 T!54210434

I'onsolidated Statements of Inzome and Retained Earnings For Years Ended December 31 Including all wholly o~vned domestic subsidiaries except The American Tobacco Company of the Orient, Inc. 1956 1955 NET SALES ............... Cost of sales, selling, general and administrative expenses ................ OPERATING PROFIT ............ Other iacome .............. Interest and related charges ......... Other deductions from income ........ Total deductions ....... Income, before taxes on income ........ Federal and other taxes on income ...... $1,082,522,617 961,776,81 3 $1,090,844,818 968,547,063 120,745,804 122,297,755 865,728 916,587 121,611,532 123,214,342 9,133,489 9,150,856 495,965 1,002,496 9,629,454 10,153,352 111,982,078 113,060,990 59,934,000 61,399,000 52,Q48,078 51,661,990 163,044,398 143,204,491 21"5,092,476 194,866,481 NET INCOME ............... Retained earnings, beginning of year ....... ' Cash dividends: Common stock, 1956, $5.00 per share; 1955, $4.40 per share ........... Preferred stock, $6 per share ...... Total dividends ........ Retained earnings, end of year (Note 1) ...... 32,562,610 28,655,097 3,166,986 3,166,986 35,729,596 31,822,083 $ 179,3l~2,880 $ 163,044,398 Depreciation provided and charged to costs and expenses amounted to $3,677,569 in 1956 and $3,513,971 in 1955. 13 T154210435

Consolidated Balan[e Sheets As of l]eternber 3|. Including all wholly owned domestic subsidiaries except The American Tobacco Company of the Orient, Inc. 1956 1955 A SSE-TS Cash ................ $ 23,646,051 Accounts receivable, customers ....... 42,565,339 46,596,533 Leaf tobacco, manufactured Stock, operating supplies, etc., at average cost .......... 648,530,~449 656,241,071 Miscellaneous accounts receivable ...... Total current assets ..... 1,042,025 1,164,276 715,~3.1,52:1 727,647,931 Investments in and advances to unconsolidated sub- sidiaries, at amounts not in excess of cost (Note 2) 17,203,024 18,152,198 Insurance deposits and miscellaneous investments . 1,457,690 1,581,109 Real estate, machinery, fixtures, etc., at cost, less allowance for depreciation, 1956, $42,968,452; 1955, $40,140,161 .......... 51,39~692 49,057,512 Prepaid expenses and deferred charges ..... 4,937,544 5,286,426 Brands, trade-marks, patents, good will, etc. 14 1 1 $790,42S,472 ~ $801,725,177 TI54210436

• LIABILITIES 1956 1955 Notes payable to banks .......... Accrued taxes ............. Accounts payable and accrued expenses .... Dividend on preferred stock for quarter ended De- cember 31 ............. Debentures to be redeemed through sinking fund op- erations (Note 3) ........... Total current liabilities .... Debentures (Note 3) ........... $ 80,000,000 $ 90,000,000 51,483,613 56,758,488 13,486,6.57 12,854,969 791,746 791,746 11,555,000 11,387,000 157,317,01"6 171,792,203 193,188,000 206,328,000 350,505,016 378,120,203 STOCKHOLDERS' EQUITY Capital stock (Note 4): Preferred, six per cent cumulative, par value $100 per share ............ Common, par value $25 per share ..... Excess of net proceeds from capital stocks issued over par values ............. Retained earnings (Note 1) ......... Tota I .......... 52,783,100 52,783,100 162,813,050 162,813,050 44,964,426 44,964,426 260,560,576 179,362,880 439,923~56 $790~28,472 260,560,576 163,044,398 423,604,974 $801,725,177 15 Ti54-210437

NOTE5 ACCOMPANYING FINANCIAL STATEMENTS 1. Under the provisions of the indenture relating to the Twenty Year 3% Debentures, due January 1, 1968, cash dividends declared on common stock and payments made in purchasing shares of any class of the Company's stock subsequent to December 31, 1947, may not exceed the aggregate of $15,000,000 and consolidated net income earned subsequent to December 31, 1947, less dividends paid on preferred stock. At December 31, 1956, approximate]y $148,600,000 of retained earnings was free of this restriction. 2. The net tangible assets applicable to the investments in and ad~nc-es~t~ unc~onsol.idated~bsidi~~c~.mb~.r 3:[~ ]956, amounted to $23,459,501. Dividends and interest of $689,957 were received from these subsidiaries in 1956; the equity in earnings applicable thereto amounted to $862,868. Twenty year 3%, due April 15, 1962 .... $ 3,741,000 Twenty year 8 %, due January 1, 1968 3,000,000 Twenty-five year 3%, due October 15, 1969 3,328,000 Twenty-five year 3~%, due February 1, 1977 . 1,486,000 Debentures outstanding at December 31, 1956, comprise: Principal Amounts Redeemable Redeemable Within After One Year* Dec. 81, 1957 $ 45,569,000 48,000,000 56,982,000 42,637,000 $11,555,000 $193,188,000 *Estimated principal amounts to be redeemed through sinking fund operations at prices as provided by the indentures. = Capital stock at December 31, 1956, comprises: Shares Shares Authorized Issued Preferred ...... 540,106 527~831 Common ....... 10,000,000 6,512,522 5. A noncontributory Retirement Plan providing unfunded (pay- as-you-go) b.enefits for employees has been in effect since January 1, 1949. Under the Plan the Company has the right to amend, modify or terminate the Plan in whole or in part at any time. Payments made under the Plan and charged to income amounted to $775,161 in 1956 and $652,110 in 1955. Substantially larger annual expendi- tures would be required to fund the Plan. 15 TI54.210438

THE I~OARD OF DIRECTORS AND STOCKHOLDERS OF 1"HE AMERICAN TOBACCO COMPANY: We have examined the consolidated balance sheet of THE ~M~R[- CAN TOBACCO COMPANY as of December 31, 1956 and the related consolidated statement of income and retained earnings for the year then ended. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting recor'ds of the companies and such other auditing procedures as we considered necessary in the circumstances. We made a similar examination for the year 1955. In our opinion, based upon our examinations, the accompanying balance sheets and related statements of income and retained earn- ings present fairly the consolidated financial position of The American Tobacco Company and the subsidiaries included therein as of Decem- ber 31, 1956 and 1955, and the consolidated results of their operations for the years then ended, in conformity with generMly accepted accounting principles applied on a consistent basis. New York~ February 4, 1957. LYBRAND~ ROSS BROS. & MONT~7~OMERY 17 T154210439

TEN-YEAR FINANEIA! REVIEW I N T H C) U S A N D S (except per share amounts) Year 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 Net Sales $ 819,631 858,996 871,62I 942,552 1,065,738 1,088,380 1,068,579 1,090,845 1,082,523 Income Before Taxes 55,584 7o;5~4 74,327 76,725 80,411 78,352 99,232 91,056 113,061 111,982 Taxes on Income $21,739 26,6,6,6,6,6,6,6,6,6~1-2 28,652 34,992 47,301 44,283 58,006 48,O05 61,399 59,934 Net income Amount $33,845 43~,:,:,9-12 45,675 41,733 33,110 34,069 41,226 43,051 51,662 52,048 Available Per Common Share $5.70 7.58 7.90 7.17 5.57 4.79 5.90 6.12 7.45 7.51 1B December 31 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 Inventories $483,133 514,958 531,558 532,679 594,544 640,753 651,044 632,143 656,241 648,530 Current Assets $537,872 567,883 583,762 593,026 668,234 712,654 725,577 703,086 727,648 715,432 , Wo~ing Capital $365,295 441,496 450,830 459,653 456,056 551,255 548,305 550,454 555,856 558,115 Plant and Equipment (Net) $32,847 41,859 43,507 43,747 44,248 44,480 46,571 47,189 49,058 51,399 TI54210440

AND ITS CONSOLIDATED SUBSIDIARIES Amount $17,704 20,169 21,514 21,514 21,514 23,934 25,816 28,654 28,655 32,563 Dividends Common Preferred Per ($6 Per Retained Sinking Fund Share Share) Earnings Requirements $3.50 3.75 4.00 4.00 4.00 4.00 4.00 4.4O 4.40 5.00 $3,162 3,162 3,162 3,162 3,162 3,162 3,162 3,167 3,167 3,167 $12,979 20,581 20,999 17,057 8,434 6,973 12,248 11,230 19,840 16,318 $ 6,367 6,555 9,749 9,942 10,154 10,377 11,989 12,261 12,532 12,839 Yea~ 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 Total Assets (I) $592,655 632,576 650,507 657,4O5 734,480 783,154 798,870 775,364 801,725 790,428 Notes: (1) (2) Debt Funded $170,608 236,069 226,375 215,653 205,430 243,570 231,266 218,967 206,328 193,188 Short Term $128,557 81,211 89,694 83,722 149,456 102,950 105,107 91,575 101,387 91,555 Net Worth (I) $248,754 269,335 290,335 307,392 315,826 377,O74 390,332 403,765 423,605 439,923 After deducting "Brands, trade-marks, patents, good will, etc." Book Value Per Common Share (1) $36.45 40.28 44.18 47.35 48.92 50.26 51.83 53.89 56.94 59.45 Comprises notes payable to banks and funded debt redeemable with[n one year. December 31 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 19 T!54210441