Tobacco Documents Online

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ANNUAL REPORT • 1960 T!54210523

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ANNUAL REPORT For the year ended December 81, 1 9 6 0 Executive Office, 150 East 42nd Street, New York 17 CONTENTS 2 HIGHLIGHTS 3 PRESIDENT'S LETTER 14 OPERATIONS AT A GLANCE 15 CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS 18 CONSOLIDATED BALANCE SHEETS 18 NOTES TO STATEMENTS 19 SUPPLEMENTARY FINANCIAL INFORMATION 20 AUDITORS" CERTIFICATE 21 DIRECTORS AND OFFICERS 22 TEN-YEAR FINANCIAL REVIEW 24 YOUR COMPANY'S PRINCIPAL PRODUCTS T154210525

HIE~HLIGiHTS AND WHOLLY-OWNED SUBSIDIARIES Per Common Share Net operating income .......... Less= Nonoperating charge to provide for possible loss of leaf inventory in Cuba, less applicable federal income tax .......... Net income ............. Dividends paid ............ Net sales ............. Operating income, before taxes on income Net income (in 1960 after provision for possible loss of leaf inventory in Cuba) ...... Dividends paid (common and preferred) .... Portion of net income invested in assets used in the business and to provide for debenture sinking fund requirements .......... Current assets, December 31 ....... Current liabilities, December 31 ...... Net working capital, December 31 ...... Number of stockholders, December 31: Common ............. Preferred ............. $4.62 .06 4.56 2.721/2 $1,215,342,819 135,843,166 62,522,313 38,660,244 23,862,069 771,818~513 175,829,476 595,989,037 89,440 7,105 1959 $4.61 4,61 2.50 $1,161,376,858 136,071,270 63,248,270 35,729,596 27,518,674 728,028,304 140,403,931 587,624,373 87,772 7,172 2 T!54210526

THE PRESIDENT'S LETTER To Our Stockholders .... FEBRUARY 14, 1961 THIS report covers operations of The American Tobacco Company, includ- ing wholly-owned subsidiaries, for 1960. Dollar sales in 1960 reached an all-time high at $1,215,342,819 compared with $1,161,376,858 in 1959, an increase of $53,965,961. This was the second succes- sive year in which dollar sales showed a gain of more than $50 million. The Com- pany's unit cigarette sales in 1960 were higher than-~n 1959, both in this country PALL ~J:ALL, the largest-selling brand made by the Company, recorded substan- tial and consistent increases throughout 1960. It has been_est_i_mated that_PALL MALL Cigarettes account for about one- seventh of all cigarettes consumed in the United States. The outstanding success of PALL MALL is attributed to the out- standing quality of its tobacco blend, re- flecting the Company's high standards of leaf purchase and precision manufacture. and abroad. Net income in 1960, before deducting nonoperating charge of $797,292 to pro- vide against possible loss of leaf inven- tory in Cuba, was $63,319,605, slightly higher than the record $63,248,270 for 1959. The 1960 fourth quarter was the fifth successive quarter to show a record high in dollar sales. Despite the provision against possible Cuban leaf loss (charged to fourth-quarter earnings), net income during that period also set a new record for a fourth quarter. S~les Again in 1960 the Company's cigarette volume increased in both the filter and non-filter fields. DUAL FmTER TAREYTON Cigarette sales continued to increase in 1960. Since its introduction in July 1958, DUAL FIL- TER TARI~YTON has shown a steady up- ward sales curve. In addition to the tra- ditional TAREYTON tobacco blend., this brand offers the exclusive dual filter with an inner component of activated charcoal, definitely proved to make the taste of a cigarette mild. Increasing acceptance of both king-size and filter-tip cigarettes again resulted in a contraction of the market for standard- size cigarettes. Unit sales of LUCKY STRIKE Cigarettes, however, showed a lesser rate of decline in 1960 than in 1959. Export unit sales of your Company's cigarettes manufactured in this country, as well as unit sales of cigarettes manu- T154210527

SALES AT RECORD HIGH /~i|llons of Ddl=rs 1200 1100 , 1951 ',52 '53 '54 '55 756~ '57~ '58~" '59~ 1960'~ ~'lncludes all wholly-owned subxid~ar~os 1200 1100 I000 900 800 700 0 factured and sold abroad by the Com- pany's English subsidiary, J. Wix & Sons Limited, were higher in 1960 than in 1959. Estimated industry cigar sales in the 10¢ price class and RoI-T,~N sales in this class were lower in 1960 than in 1959; however, RoI-TAN continues to be Amer- ica's largest-selling 10¢ cigar. The brand's new Sta-Firm head, advertised beginning at midyear, was reflected in improved sales performance during the second half. RoI-TAN also offers Golfers at 4¢ and Cigarillos and Trumps at 5¢. Combined sales of the two 5¢ shapes were higher in 1960 than in 1959. The Company's higher-priced cigars-- including LA CORONA, ANTONIO y CLEO- -P-A-T~nd-BocK~C-CA~ag~in~shawed~n increase in combined unit sales. These brands comprise the largest-selling cigar iine in their field. Sales of smoking tobaccos were lower in 1960 than in 1959. Improvements in packa~ging continued in 1960. A new package design for HER- BERT TAREYTON Nonfilter King-Size Cig- arettes was introduced early in the year. A new carton was designed for LUCKY STRIKE Cigarettes and introduced in Jan- uary 1961. The Company's principal products are listed on page 24 of this report. Stock- holders are urged to use these quality products themselves, to use them as gifts, and to promote them among their friends and acquaintances who smoke. By pro- moting the Company's brands, stockhold- ers can materially contribute to sales and to the value of their own investment. Earnings Net income in 1960, before dedLlcting 4 Ti54210528

nonoperating charge of $797,292 to pro- vide against possible loss of leaf inven- tory in Cuba, was $63,319,605, slightly higher than the record $63,248,270 for 19~9~_After_t~n~_1fi6.0-netAn - come was $62,522,313. Based on 13,025,044 shares of the Com- pany's Common stock now outstanding, per share earnings in 1960, before pro- viding against possible loss of leaf inven- tory in Cuba, were $4.62 against $4.61 in 1959. After this provision, per share earnings in 1960 were $4.56. Per share figures are in terms of the present Com- mon stock, after the 2-for-1 split effective April 7, 1960. Common Dividend Increased 1960 was the 56th consecutive year in which Common dividends have been paid by your Company. An increased regular quarterly divi- dend of 57z~ cents per Common share was paid on June 1, September 1 and Decem- ber 1, 1960. Previous regular quarterly paymentshad been equivalent to 50 cents per share on the present Common stock. The total amount of dividends paid in 1960 on both Common and Preferred NET INCOME, DIVIDENDS AND INCOME REINVESTED NET "INCOME ! i • ; • i 1951 1952 1953 1954 1955 1956" 1957" 19~8e 1959e 1960" *Include, all wholly.owned lubsh~lorle$ FINANCIAL POSITION STRONGER M~llon, of Dollorl 6OO 600 500 400 400 300 300 200 200 100 100 0 0 1951 '52 '53 '54 '55 '56" '57" '58" '59" '60~ NET WORTH LONO-TERM DEBT *lnclude~ oll wholly-owned sublldloriel T154.210529

stock was $38,660,244. The balance of 1960 earnings amounting to $23,862,069 was retained for use in the business. New Dividend Policy On January 31, 1961, a regular quarterly dividend of 70 cents per Common share was declared, payable on March 1, 1961, to stockholders of record February 10, 1961. This action carried out the previ- ously announced intention of the Board of Directors [o equalize quarterly divi- dends on the Common stock in 1961. For the past several years, an extra dividend equivalent to 50 cents per share on the presen~ Common stock was paid on , • th~ n~.w !:ml- icy, subject as always to business condi- tions at the time, regular quarterly divi- dends will be increased 12!-, cents per share in place of paying the extra divi- dend of 50 cents on March 1. Stockholders in 1961 will, under this plan, receive four regular quarterly divi- Lc~f A. ct ion Rcscarch Cigarette 3laki~zg T154210530

dend payments of 70 cents per Common ing Fund. It is the present intention of share, or a total of $2.80 per share for the your Management to meet this maturity full year. Dividends (including extras) out of working capital provided other de- were equivalent to a total, on the present mands for working capital do not indicate ~:krmznxrn--xTock;-oT-$2.~ ~2~?~--~ p-ev-sh-a-re-~--~h-e-~-~g~dToY-nww--financing. However, no 1960 and $2.50 per share in 1959 and the three previous years. Continued Improvement in Financial Position The Company's over-all financial position continued to grow stronger last year. Long-term debt was $14,913,000 lower at the end of 1960 than at the end of 1959, as a result of retirement of debentures through operation of the Sinking Funds. This reduction, together with the addi- tion of $23,862,069 of retained earnings to net worth, further improved the ratio of funded debt to net worth. Thus funded debt was 25 % of net worth at the end of 1960 as compared with 70% ten years ago. In April 1962, approximately $26,000,- 000 of the $100,000,000 3~ Debentures issued in 1942 will become due and pay- able. This represen[s the amount of de- bentures which will not have been re- deemed through the operation of the Sink- new financing is presently contemplated. Notes Payable were higher during most of 1960 and amounted to $78,000,- 000 at the end of the year compared with $56,000,000 a year earlier. Heavier pur- chases of leaf tobacco accounted for the increase in this type of indebtedness. However, at times during the summer months there were no Notes Payable out- standing. Increased sales volume of our English subsidiary, necessitating increased work- ing capital, was the cause of the increase in the loans payable by this subsidiary. Net working capital at the end of 1960 amounted to $595,989,037 compared with $587,624,373 a year earlier. Taxes Federal and other taxes on income in 1960 amounted to $71,659,828, or $5.50 per Common share. This compares with net income of $4.56 per Common share. The Company's total tax bill for 1960, T!54210531

including excise taxes of $491,250,000, income taxes, social security and other taxes, amounted to $648,301,324. Although the Company is not involved inJf~coi!~fio~ko_f_Sta_~t and local tobacco taxes, they represent a substantial levy on sales of its products with commensu- rate higher prices to the consumer. At the end of 1960, 47 of the 50 States (all except Colorado, North Carolina and Ore- gon) had a tax on cigarettes and more than 200 local taxing units (cities and counties) also levied taxes on tobacco products. Capital Expenditures Capital expenditures in 1960 were mainly for machinery and other equipment to im- prove the efficiency of handling and proc- essing in our cigarette factories and for additions to and improvements in build- ings. Additional manufacturing facili- ties were also acquired during the year by our English subsidiary in order to handle its increased volume of cigarette sales. Total capital expenditures in 1960 were $7,838,000 compared with $9,121,- 000 in the previous year. Depreciation charged to cost and expense in 1960 amounted to $5,480,419. Leaf Tobacco As it has for many years, the Government continues to control the growing and marketing of flue-cured and Burley leaf tobacco, the principal types used in mak- ing cigarettes. This control takes the form of acreage restriction at the farm and price support at the auction markets. Average ma'rket prices for flue-cured ~nd Burley tobacco are now nearly four times as high as in 1940. The flue-cured crop in 1960 totaled about 1,250 million pounds, nearly 16% above 1959, and the average selling price for the crop on the auction markets was 59.9¢ per poundmabout 2¢ above a year earlier and a record high. The Govern- ment price support level for the 1960 crop was 55.5¢ per pound. The harvest of Burley tobacco in 1960 was about 496 million pounds, or roughly 1% below the previous year. Prices on the auction markets through the end of 1960 averaged 65.3¢ per pound, which is 4.3¢ higher than in the comparable period of 1959. The Government price support T!54210532

level for the 1960 crop was 57.2¢ per pound. Approximately 75% of the 1960 crop had been sold through the end of the year compared with 907~ at the same ~m.e-in 1059~ The Company's constant effort to im- prove the quality of its tobacco products is, of course, dependent in the first in- stance upon the purchase of the better grades of leaf tobacco. In line with this policy, your Company's purchases on the auction markets were concentrated on the finest grades of leaf tobacco available. The Cuban Situation Your Company owns 84.5% of Cuban Tobacco Company Inc. Common stock. The operating results of Cuban Tobacco Company Inc. have never been consoli- dated with those of The American To- bacco Company. Furthermore, the sum total of its operations in Cuba is not sig- nificant in terms of either sales or earn- ings when compared with total opera- tions of The American Tobacco Company. The American Tobacco Company's in- vestment in and advances to Cuban To- bacco Company Inc. are carried on the balance sheet at $5,555,069, represent- ing less than 17~ of the Company's total assets. The Company's 1960 income in- cluded $207,270 representing interest on Cuban Tobacco Company Inc. loan and nn~.e.~ ; t.hi.~ vcasJessAhan ~./,~ of :1% of The American Tobacco Company's operating income before taxes. Cuban Tobacco Company Inc. has paid no dividends on its Common stock for many years. Through its investment in Cuban To- bacco Company Inc. the Company had an equity in two small subsidiaries which operated in Cuba. One was intervened and the other nationalized. Information regarding the financial aspects of these expropriations are set forth in the notes on page 18. Provision was made against possible loss of leaf tobacco inventories in Cuba owned by The American Tobacco Com- pany which we were unable to have shipped to the United States. This amount was $797,292 after deducting applicable Federal income tax. Cuban Tobacco Company Inc. contin- ues to manufacture cigars in the United States at its Trenton, N. J., factory. Sales of these cigars amounted to $8,716,501 in 1960. Dollar sales of cigars and ciga- T|54210533

rettes manufactured in Cuba are not available for 1960. However, in the past they have represented less than one-half of Cuban Tobacco Company's consoli- dated sales of manufactured products. Advertising and Sales Prornotion Your Company is one of the nation's larg- est advertisers. Virtually all major me- dia, including newspapers, magazines, television, radio and billboards, are used to sustain and widen the demand for our tobacco products by the smoking public. As is the case with most manufac- Supe,'ma,.kct Display turers of branded consumer products, considerable time, effort and expense are devoted to this aspect of operations. Na- tional advertising to sustain and increase the large sales volume of our brands makes ~blg-~or the Company to maintain and improve their high quality standards and still produce a profit. Be- ginning about one hundred years ago, national advertising made possible the emergence of national tobacco brands and the volume production, high quality standards and relatively low prices on which the Company's business is based. Our Sales Organization, which is also nationwide, reinforces the work of our brand advertising and services the dis- tribution of our products. Its members strive to maximize distribution, extend merchandising and display aid to retail- ers, insure that our products are properly eared for at both wholesale and retail levels, and also sample consumers di- rectly. The work of the Advertising and Sales Departments is constantly reviewed so as to get full value for each dollar spent on promotion and so as to strengthen our important lines of communication with the trade and the consuming public. T154210534

']hreyton delivers the flavor... Tobacco Institute The Tobacco Institute, Inc. represents your Company and other tobacco manu- facturers in creuting better knowledge and understanding of tobacco among the general public. On December 1, 1960, Mr. George V. Allen assumed the Presi- dency of The Tobacco Institute. Mr. Allen resigned last year from government serv- ice after a distinguished thirty-year ca- reer as Ambassador to various countries, as Assistant Secretary of State for Public Affairs, and as Director of the United States Information Agency. A native of Durham, North Carolina, Mr. Allen was reared in the tobacco country and has had first-hand experience in our industry. Representatire Adrerti.~eme~ts GOOD GOOD GOOD 1! T!54210535

Smoking and Health As was true in previous years, 1960 pro- duced no laboratory or pathological evi- dence to support the highly propagan- di~-d~garette theory. Th~-lacl~ of substantiation for this theory has been the subject of comment by a number of outstanding scientists. Your Company continues to support the scientific program of the Tobacco In- dustry Research Committee, now in its eighth year. Since its inception, the T.I.R.C. has appropriatgd about $4 mil- lion for objective research in the area of smoking and health, this research being performed by independent scientists with no obligation to the industry other than to pursue the facts and publish them. The research program is administered by a Scientific Advisory Board whose mem- bers are not connected with the tobacco industry. Last year in a joint report to the T.I.R.C., the Scientific Advisory Board stated in part: .... "... perhaps the most significant de- velopment has been the general recog- nition that we do not yet have the an- i960 Stockholders' Mectb~g T154210536

swers: that an association between the extent of tobacco use and the incidence of lung cancer does not prove a causal relationship .... " Personnel Mr. John A. Crowe retired from his du- ties as a Director and Senior Vice Presi- dent, Manufacture and Leaf, on Decem- ber 31, 1960, after more than 50 years of service to the Company. It is-with pro- found regret and a deep sense of loss that the Directors report his death on Febru- ary 18, 1961. During his notable career Mr. Crowe did much to maintain and strengthen the tradition of quality upon which rests the success of the Company and of the industry as well. Mr. Charles Ganshow, formerly a Di- rector and Deputy Comptroller of The American Tobacco Company, and Vice President of the ACC Division, retired from these duties on December 31, 1960, after 50 years of service to the Company and its subsidiaries. His many contribu- tions to the Company's operations will be remembered by those who follow him. The Directors gratefully acknowledge the long and exemplary careers of Messrs. Crowe and Ganshow and their wise counsel as members of the Board. Stockholders' Annual Meeting ' The-knn~al-M~e ti~~kh~de r ,~r~311- be held on W4dnesday, April 5, 1961. For- real notice of this meeting, together with the proxy and proxy statement, accom- panies this report. During the past year I have again re- ceived many letters from our stockhold- ers evidencing an active interest in the affairs of the Company. A substantial number of these communications have shown great interest in the promotion of the Company's products. On behalf of the Board of Directors, I should like to express our appreciation for this cooperation from the stockhold- ers, for the cooperation of our customers and for the faithful service rendered by our employees. PAUL l~I. HAHN Presiden~ T!54210537

1960 OPERATIONS AT A GLANCE The Company received far goods it sold and from interest and miscellaneous ....... • $1,216,015,000 T-l-~s-is-h-ow-i-t-was-used-or-se~-~sid~- $ 648,301,000 $ 276,097,000 $ 222,628,000 $ 6,467,000 $ 38,660,000 $ 28,86~.000 Taxes (excise, income, social security, etc.:) Tobacco (including applicable expenses) Wages, Goods, Services, etc. Bond and Bank Interest Dividends to Stockholders Earnings Retained to Meet Future Needs 3.2% 2.0% I I 14 T!54210538

Consolidated Statements of INCOME AND RETAINED EARNINBS AND WHOLLY-OWNED SUBSIDIARIES For Years Ended December 3I Net Sales ............... Cost of sales, selling, general and administrative expenses .............. Operating Profit ............. Other income ............. Interest and related charges ........ Other deductions from income Total deductions ....... Operating income, before taxes on income .... Federal and other taxes on income ...... Net Operating Income ........... Provision for possible loss of leaf inventory in Cuba, less applicable federal income tax of $863,733 Net Income .............. Retained earnings, beginning of year ...... Cash Dividends: Common stock, 1960, $2.72~'2p share; 1959, $2.50 per share (Note 1)er ..... Preferred stock, $6 per share ....... Total dividends ........ Retained earnings, end of year ........ Depreciation provided and charged to costs and expenses amounted to $5,480,419 in 1960 and $5,215,154 in 1959. 1960 $1,215,342,819 1,072,572,440 142,770,379 671,868 143,442,247 6,467,008 1,132,073 7,599,081 135,843,166 72,523,561 63,319,605 797,292 62,522,313 254,908,381 317,430,694 35,493,258 3,166,986 38,660,244 278,770,450 1959 $1,161,376,858 1,019,129,251 142,247,607 511,415 142,759,022 5,906,001 781,751 6,687,752 136,071,270 72,823,000 63,248,270 63,248,270 227,389,707 290,637,977 32,562,610 3,166,986 35,729,596 $ 254,908,381 TI54210539

CONSOLIDATED BALANCE SHEETS Assets December 81 Cash ................ Accounts receivable,customers ........ Leaf tobacco, manufactured stock, operating supplies, etc., at average cost ........... Miscellaneous accounts receivable ....... Total current assets ...... Investment in and advances to Cuban Tobacco Com- pany Inc., a majority-owned subsidiary, at amounts not in excess of cost (Note 2) ....... Insurance deposits and miscellaneous investments Land, buildings, machinery, etc., at cost, less accu- mulated depreciation, 1960, $58,752,744; 1959, $55,844,776 ............. Prepaid expenses and deferred charges ..... Brands, trade-marks, patents, good will, etc ..... 1960 $ 20,400,242 56,576,888 693,389,538 1,451,845 771,818,513 5,555,069 1,123,080 68,699,311 3,704,528 1 $850,900,502 19~9 $ 17,740,414 51,910,968 656,680,134 1,696,788 728,028,304 5,955,069 1,113,692 67,776,385 3,652,437 1 $806,525,888 16 T154210540

AND WHOLLY-OWNED SUBSIDIARIES Liabilities December 31 Notes payable ............. Loans payable by British subsidiary ....... Accrued taxes ............. Accounts payable and accrued expenses ..... Dividend on preferred stock for quarter ended December 31 ............. Debentures to be redeemed through sinking fund opera- tions (Note 3) ............. Total current liabilities ...... Debentures (Note 3) ........... Stockholders' Equity Capital stock (Note 1): Preferred, six per cent cumulative, par value $100 per share ............. Common, par value $12.50 per share ..... Excess of net proceeds from capital stocks issued over par values .............. Retained earnings ............ Total ........... $ 78,000,000 8,665,417 53,751,821 24,064,492 791,746 10,556,000 175,829,476 135,740,000 311,569,476 52,783,1 O0 162,813,050 44,964,426 260,560,576 278,770,450 539,331,026 $850,900,502 1959 $ 56,000,000 4,410,546 53,817,206 15,760,433 791,746 9,624,000 140,403,931 150,653,000 291,056,931 52,783,100 162,813,050 44,964,426 260,560,576 254,908,381 515,468,957 $806,525,888 T154210541

Notes Accompanying i=inancial Statements 1, Capital stock at December 31, 1960, comprises : Preferred ....... Common ........ Shares Shares Authorized Issued 540,106 527,831 20,000,000 13,025,044 The number of shares of common stock authorized and issued reflects the change of each share of the_I~ar value o~f~$~0~ar~_of_the-p~---~a.lue~f~h2.~0~, as-approved-by-the-st~ckhoifler~ at the 1960 annual meeting; all information regardb~g shares gives effect to this change. During 1960, Cuban Tobacco Company Inc., a majority-owned unconsolidated subsidiary, provided for possible loss of its investments in two wholly-owned subsidiaries operating in Cuba and of its leaf inventory in Cuba, by charge to retained earnings. The provision, less applicable federal income tax, amounted to $4,280,492 of which $3,656,947 was applicable to the majority interest of The American Tobacco Company. At December 31, 1960, after this provision, the net tangible assets applicable to the Company's $5,555,069 investment in and advances to this subsidiary amounted to $6,321,767. The Company received $207,270 of interest from this subsidiary in 1960, and its equity in the-~et income of this subsidiary for 1960 amounted to $157,021. " At December 31, 1959, the net tangible assets applicable to the Company's $5,955,069 investment in and advances to Cuban Tobacco Company Inc. and its consolidated subsidiaries amounted to $10,069,546. The Company received $254,160 of interest from this subsidiary in 1959, and its equity in the consolidated net income of this subsidiary for 1959 amounted to $399,793. Debentures outstanding at December 31, 1960, comprise: Twenty year 3%, due April 15, 1962 ..... Twenty year 3%, due January 1, 1968 .... Twenty-five year 3%, due October 15, 1969. Twenty-five year 3¼%, due February 1, 1977 Principal Amounts Redeemable Within One Year* Redeemable After Dec. 31~ 19R1 $ 3,430,000 $ 25,948,000 3,000,000 36,000,000 2,997,000 38,590,000 1,129,000 35,202,000 $10,556,000 $135,740,000 ~Estimated principal amounts to be redeemed through sinking fund operations at prices as provided by the indentures. A noncontributory Retirement Plan providing for funding of cost of benefits thereunder, as approved by the stockholders at the 1960 annual meeting, became effective as of January 1, 1960. 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 and charged to income under the Plan, including amounts applicable to service prior to 1960, amounted to $4.75-1,242 ($2,207,811 after federal and state income taxes~ in 1960. Payments made and charged ~o income under the previous plan (pay-as- you-go) amounted to $1.128,823 ($524.890 after federal and state income taxes~ in 1959. A deferred Profit-Sharing Plan as approved by the stockholders at the 1960 annual meeting, became effective January 1. 1960. The Plan extends benefits to all regular full-time employees of the Company and designated subsidiaries in the year following completion of a calendar year of con- tinuous service, beginning with the calendar year 1959. In 1960, $5,054,695 f$2,348,613 after federal and state income taxes1 was provided under the Plan and charged to income. T154210542

Supplementary I=inancia! Information Inventories Leaf tobacco December 81 1960 1959 $620,433,382 $586,605,133 Manufactured stock .............. 52,679,739 51,065,978 Supplies .................. 20,276,417 19,009,023 TOTAL ................. $693,389,588 $656,680,184 Inventories used in the computation of cost of sales are priced at costs which result from the averaging monthly of transactions reflected in the inventory accounts except that excise taxes in manufactured stock inventories were priced at actual cost. Land, Buildings, Machinery, etc. Land and buildings .......... Machinery and equipment ........ Office furniture and equipment ..... Automobiles and trucks ........ Construction in process ........ TOTAL ........... GROSS $ 54,134,640 63,450,707 3,378,892 4,168,603 2,319,213 $127,452,055 De~ember 31.1960 ACCUMULATED DEPRECIATIO~ $28,249,236 26,221,448 2,157,159 2,124,901 $58,752,744 NET $25,885,404 37,229,259 1,221,733 2,043,702 2,319,213 $68,699,311 T154210543

Report of Independent Certified Public Accountants The Board o] Directors and Stockholders of THE AMERICAN TOBACCO COMPANY: We have examined the consolidated balance sheets of THz AMERICAN TOBACCO COMFAN¥ as of December 31, 1960 and 1959 and the related consolidated statements of income and retained earnings for the years then ended. Our examinations were made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the accompanying balance sheets and related statements of income and re- tained earnings present ~airly the consolidated financial position of The American Tobacco Com- pany and its wholly-owned subsidiaries as of December 31, 1960 and 1959, and the consolidated results of their operations for the years then ended, in conformity with generally accepted account- ing principles applied on a consistent basis. New York, February 2, 1961. LYBRAND, ROSS BROS. & MONTGOMERY T154210544

DIRECTORS OFFICERS ORPH-EU$-D=-. ALFRED F. BOWDEN THOMAS P. CONNORS A. GORDON FINDLAY JOHN G. HAGER, JR. VIRGIL D. HAGER PAUL M. HAHN HIRAI~I R. HANMER HARRY L. HILYARD A. LEROY tANSON FERDINAND MALLGRAF JOHN B. SPARROW SILAS E. STRICKLAND GEORGE L. TURNER ROBERT B. WALKER GEORGE A. WILKINSON WILLIAM B. YOUNG Executive Of]ice Corporate O..ffice Transfer Agent. Registrar ALFRED F. BOWDEN, Vice President VIRGIL D. HAGER, Vice PreMden~ HARRY L. HILYARD, Vice President and Treasurer A. LEROY JANSON, Vice President and Comptroller ROBERT B. WALKER, Vice President WILLIAM B. YOUNG, Vice P.residen~ J. WESLEY DALE, Auditor ROBERT K. HEIMANN, Assistant to the Presiden~ JOI-IN W. HANLON, Secreta~'y WALTER A. KENNEDY, Assistant Auditor FREDERICK W. KENNY, Assistant Secretary JOSEPH R. WATERHOUSE, Assistant Treasurer FRANCIS X. WHELAN, Assistant Treasurer 150 East 42nd Street, New York 17, N. Y. 117 Main Street, Flemington, N. J. Morgan Guaranty Trust Company of New York, New York 15, N.Y. First National City Trust Company, New York 15, N. Y. T154210545

TEN-YEAR FINANCIAL REVIEW IN THOUSANDS (E=ccp~ Per Slmre Amounts) YIEA~ 1951 1952 t953 t954 1955 1956(1) 1957(I) 1958(1) 1959|1) 1960(1) DE[CEMBER 31 1951 1952 1953 1955 ~955(I) 1957(i) 195511) 1959111 1960( 1 ) NET SALES $ 942,552 1,065,738 1,088,380 1,068,.579 1,090,845 1,091,206 1,098,093 1,105,176 1,161,377 1,215,343 INCOME BEFORE TAXES $ 80,411 78,352 99,232 91,056 113,061 111,352 118,605 124,994 136,071 134,182 TAXES ON INCOME $47,301 44,283 58,006 48,005 61,399 59,663 61,510 66,138 72,823 71,660 NET INCOME--------~ AVAILABLE PER AMOUNt COMMON SHARE $33,110 $2.78 34,069 41,226 43,051 51,662 51,689 57,095 58,856 63,248 62,522 2.39Ib) 3.06{cl 3.72{cl 3.73{c~ 4.14(cI 4.28~a 4.61{~1 4.56(a INVENTORIES $594,544 640,753 651,044 632,143 656,241 655,116 671,381 648,311 656,680 693,390 CURRENT ASSETS $668,234 712,654 725,577 703,086 727,648 724,423 740,483 717,268 728,028 771,819 WORKING CAPITAL $456,056 551,255 548,305 550,454 555,856 566,581 569,345 574,089 587,624 595,989 PLANT AND EQUIPMENT (NET) $44,248 44,480 46,571 47,189 49,058 52,216 58,154 64,895 67,776 68,699 NOTES: (1) Includes all wholly-owned subsidiaries. (2) Based on following shares adjusted to reflect the two for one stock split which became effective April 7, 1960: (a) 10,756,850; (b) 12,908,220; {c) 13,025,044. (3) Comprises notes payable, loans payable by British subsidiary and funded debt redeemable within one year. T!54210546

AND ITS CONSOLIDATED SUBSIDIARIES COMMON AMOUNT 23,934 25,816 28,654 28,655 32,563 32,563 32,563 32,563 35,493 TOTAL ASSETS $734,48O 783,154 798,870 775,364 801,725 794,404 815,207 796,532 806,526 850,901 DIVIDENDS PER SHARE $2,00 2.00 2.00 2.20 2.20 2,50 2.50 2.50 2.50 2.721/2 PREFERRED FUNDED $205,430 243,570 231,266 218,967 206,328 193,188 179,330 165,402 150,653 135,740 ($6 PER SHARE) $3,16P 3,162 3,162 3,167 3,167 3,167 3,167 3,167 3,167 3,167 DEBT SHORT TERM (3| $149,456 102,950 105,107 91,575 101,387 91,555 104,785 76,521 70,035 97,221 RETAINED EARNINGS $-8r434 6,973 12,248 11,23o 19,84o 15,959 21,365 23,126 27,518 23,862 NET WORTH $315,826 377,074 390,332 403,765 423,605 443,374 464,739 487,950 515,469 539,331 SINKING FUND REQUIREMENTS ~4 10,377 11,989 12,261 12,532 12,839 13,144 13,468 13,800 14,151 BOOK VALUE PER COMMON SHARE $24.46 25.13 25.92 26.95 28.47 29.99 31.63 33.41 35.52 37.35 YEAR 1952 1953 1954 • 1955 1956(|} 195'7(1 ) 1958(I| 1959(| I 19SO(|l DECEMBER 1951 1952 1953 1954 1955 1956(|) 1967(] } 1958(1) 1959||) Im6Olll 23 Tl54210547

YOUR COMPANY'S PRINCIPAL PRODUCTS which make your dividends possible ..... CIGARETTES Pall Mall--"Outstanding . . . and they are mild!"--the nation's King. PALL MALL's famous length of fine tobacco travels and gentles the smoke--makes it mild. Never too strong. Never too weak. Always just right ! And .you can light either end ! Lucky Strike -- A blend of the finest Turkish and domestic tobaccos. The LUCKY STRIKE process "It's Toasted" enhances the taste of these fine tobaccos. A leader among standard size brands Dual Filter Tareyton -- "Detivers the flavor-- Dual Filter does it." Combines a unique inner filter of Activated Charcoal with a pure white outer filter. It has been definitely proved that Activated Charcoal makes the taste of a cigarette mild and smooth Herbert Tareyton -- Full king size.., the nonfilter cigarette with the tailored tip. A favorite for 45 years because of its distinctive, mild taste CIGARS Roi-Tan -- America's largest selling cigar at 10¢. Also R01-TAN Cigarillos and Trumps at 5# and Golfers at 4~. "R01-TAN has more of everything" than any cigar at its price Antonio y C~eopatra ~ the ~nildest of the fine cigars La ~oronae -- "Supreme the World Over" Bock y Ca ~ the original panetela, created in 1888 * "International Brands," among which are LA COI~ONA, BOCK y CA and HEI~RY CI.~Y, are manufactured by a subsld~ary of the Company. SMOKING TOBACCOS Half and Half --the Company's leading granulated plug cut, Bur|ey and Bright. Being made available in pouch-in-box packing for do~ble protection, longer-lasting freshness Blue Boar ~ American Tobacco's leader among high-grade pipe tobacco blends Genuine "Bull" Durham ~ still far and away the No. 1 "roll-your-own" tobacco 24. OUR AIIDDLK T154210548

LA CORONA CORONAS T15421054-9

ANNUAL .REPORT • 1960 T154210550