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J~.v~ ~-., J0 NOTICE OF MEETING ` Flemington, N. J., March 2, 1959 'The Annual Meeting of stQckholders of THE AMERtcAN 'TonAcco COMPANY will be held at the Hunterdon Theatre, corner of Route 69 and Church Street, Flemington, New Jersey, at one-thirty o'clock in the afternoon (Eastern Standard Time) on Wednesday, April 1, 1959, for the following purposes:. (1) to elect Directors; (2) to consider and vote upon a proposal (designated Proposal 1 and set forth in the following proxy statement) to elect Lybrand, Ross Bros. & Montgomery as independent auditors for the Company for the year 1959, which proposal has been recommended by, the Management;, (3) to consider and vote upon a proposal relating to cumulative voting (designated Proposal 2 and set forth in the following proxy statement) expected to be introduced by three stock• holders; and (4) to transact such other business as may properly come before the meeting. The stock transfer books will not be closed, but holders of Preferred Stock and Common Stock, to be entitled to vote, must be holders of record at the close of business on*March 2, 1959. JOSN •W. HANLON, Secretary

PROXY STATEMENT .. The enclosed proxy is solicited by the Management. The proxy may be revoked by notice in writing given to the Secretary at any time before being voted. Proxies in the form enclosed, properly executed by stockholders and duly returned to the Management and not revoked, will be voted and, where a specifica- tion is made on the ballot provided therein, will be voted in accordance with such specification. Attendance at the meeting does not serve to revoke the proxy. The number of shares of each class of voting securities of the Company outstanding is: Preferred, 527,831 shares; Common, 6,512,522 shares. The Preferred Stock is entitled to four votes per share. The Common Stock is entitled to one vote per share. The record date for the determination of stockholders entitled to vote at the meeting is the close of business March 2, 1959. ELECTION OF DIRECTORS The Board of Directors consists of 'nineteen members who are elected to hold office until the next Annual Meeting or until their successors are duly elected and qualified. It is intended that proxies in the accompanying form will be voted for the nominees named below. These nominees are members of the present Board and have served as directors of the Company for, the periods commencing with the dates set after their respective' names. The Company is informed that these nominees were directly or indirectly the beneficial owners of outstanding securities of the Company at the close of business on ~ February 2, 1959, as set forth after their respective names. Name Positions and Offices with Company and Principal Occupation(a) Year First Elected Director Common Preferred Orpheus D. Baxalys Vice-President and Managing Director, 1940 2,405 62 Alfred F. Bowden The American Tobacco Company of the Orient, Inc. (b) Vice-President in charge of Public Re- 1951 - 700 Thomas P. Connors lations Director of Traffic 1946 300 John A. Crowe Senior Vice-President 1931 800 105 A. Gordon Findlay Vice-President, American Cigarette and 1953 2,005 Charles Ganshow Cigar Division, and Chief of Cigar Sales Vice-President, American Cigarette and 1953 1,000 John G. Hager, Jr. Cigar Division, and Deputy Comp• troller Manager of Louisville, Ky., Cigarette 1956 200 Virgil D. Hager Factory . Vice-President, Manufacture 1955 190 Paul M. Hahn President 1931 4,784 Hiram R. Hanmer Vice-President, Department of Research 1938 300 Harry L Hilyard and Development Vice-President and Treasurer - 1944 750 A. LeRoy Janson Vice-President and Comptroller 1948 500 ~ 0 0 2 ~

Name • - Positions and Offices with Company _and Principal Occupation(a) Year First Elected Director Common Preferred Ferdinand Mallgraf Director of Purchases 1957 100 John B. Sparrow Vice-President, American Suppliers Di• vision 1958 .. 250 Silas );. Strickland Vice-President and General Manager of Stemmeries, American Suppliers Di- vision 1957 100 George L. Turner President, American Suppliers Division 1958 200 Robert B. Walker Vice-President and Director of Sales 1955 410 George A. Wilkinson Director, Tax Department 1957 300 William B. Young Assistant to the Senior Vice-President 1956 620 • (a) The positions and offices listed after the name of a nominee are with the Company, unlesa otherwise noted, and occupation. (b) Affiliated company engaged in purchase and handling of leaf tobacco. are hie principal The Company is also informed that none of the nominees was directly or indirectly the beneficial owner on February 2, 1959, of outstanding securities of subsidiaries of the Company, other than directors' qualifying shares. John B. Sparrow was elected a director on September 30, 1958. He has been employed by the Company or American Suppliers, Incorporated, formerly the Company's chief leaf-buying subsidiary, for more than 27 years. During the 5 years prior to January 1, 1959, he was employed by American Suppliers, Incorporated, as a leaf-buying supervisor to July 1, 1954, as Assistant to a Vice President to March 1, 1957, and as a Vice President to January 1, 1959. He became a Vice President of American Suppliers Division on January 1, 1959, following the merger into the Company of American Suppliers, Incorporated. American Suppliers Division now conducts the operations formerly carried on by that subsidiary. In the event any nominee is not a candidate or is unable to serve as a director at the time of the election, which is not now expected, it is intended that the proxies will be voted for any nominee who shall be designated by the present Board of Directors to fill such vacancy. Proposal 1 ELECTION OF INDEPENDENT AUDITORS The Management proposes and recommends the election by'the stockholders at the Annual Meeting of Messrs. Lybrand, Ross Bros. & Montgomery as independent auditors for the Company for the year 1959. In line with this recommendation the Management intends to introduce at the forthcoming Annual Meeting the following resolution (designated herein as Proposal 1): RESOLVED, that Messrs. Lybrand, Ross Bros. & Montgomery be and they hereby are elected the independent auditors for the Company for the year 1959. This firm of certified public accountants have been for over 25 years the independent auditors for the Company. In accordance with the Company's customary practice a member of the firm will attend the Annual I,Vleeeting and respond to questions which may be asked by stockholders. The Management recommends that you vote FOR Proposal 1. Proposal 2 RESOLUTION PROPOSED BY THREE STOCKHOLDERS The Company is informed that Lewis D. Gilbert, a record holder of 80 shares of Common Stock, whose address is 1165 Park Avenue, New. York 28, N. Y., and/or John J. Gilbert, a record holder of 3

80 shares of Common Stock, whose address is 1165 Park Avenue, New York 28, N. Y., and/or John Campbell Henry, a record holder of 400 shares of Common Stock, whose address is 5 East 93rd Street, New York 28, N. Y., intend to introduce at the forthcoming Annual Meeting the following resolution (designated herein as Proposal 2) : "RESOLVED: That the stockholders of The American Tobacco Company, assembled in annual meeting in person and 'by proxy, hereby request that the Board of Directors take the steps necessary to provide for elections of directors by cumulative voting, which means each stockholder shall be entitled to as many votes as shall equal the number of votes which he would be entitled to cast for the election of directors with respect to his shares of stock multiplied by the number of directors to be elected, and he may cast all of such votes for a single candidate or any two or more of them as he may see fit." - ----- - - The proposers of this resolution, Messrs. Gilbert, Gilbert and Henry, have urnis e t e fo owing statement setting forth the reasons advanced by them in support of their proposal: "Growing interest of owners in cumulative voting was demonstrated last year when 231,537 votes were cast in favor of our resolution, compared to 223,920 votes when it was last introduced in 1953. The need for cumulative voting at American Tobacco is especially important because of the continued insistence of the management on an all-management Board of Directors, in contrast to Lorillard and even R. J. Reynolds. Cumulative voting is now mandatory under the law of 22 states, North Carolina being the latest so to act." Believing as it does in the principle that the Company is best managed by directors giving their entire time and effort to its service, the Management is of..the opinion that Proposal 2 does not serve any useful purpose, and that it would not be in the Company's interest to initiate steps to provide for cumulative voting. Substantially identical proposals were introduced by the same proposers in 1958 and at five consqcutive annual meetings from 1949 to 1953. That the great majority of the stockholders share the Management's opinion is evidenced by the fact that each of these proposals was overwhelmingly rejected by the stockholders. At the 1958 meeting, 'when the proposal was last submitted, the stockholders cast 6,439,532 votes (96oJo) against the proposal. The Management recommends that you vote AGAINST Proposal 2. The Management is not aware at the date hereof of any matter that is intended to be presented at this meeting other than the election of directors and Proposals 1 and 2. If any matter not known at the date hereof is properly presented for action at the meeting, it is intended that the persons named in the proxies will vote thereon according to their best judgment. RE11ILfiTERATION Remuneration of Directors and Officers. There is set forth in'the following tabulation, on an accrual basis, all direct remuneration paid by .the Company and its subsidiaries to the following persons for services in all capacities while directors or officers of the Company during its last fiscal year: each director, and each of the three highest paid officers, of the Company whose direct aggregate remuneration exceeded $30,000; and all directors and officers of the Company as a group. Estimated annual retirement benefits to the same individuals at normal retirement date under the Retirement Plan for en'iployees adopted by the stockholders at the 1949 Annual Meeting are stated in Column (4). 4 ~ 0 0 w N Ln

1) Name of individual or identity of group 2) (3) Capacities in which Aggregate remuneration was received (a) remuneration (b) (4) Estimated annual retirement benefit at normal retirement date (maximum i25,o00) Orpheus D. Baxalys Vice-President and Managing Director, The = 57,854 $11,080(g) Alfred F. Bowden American Tobacco Company of the Orient, Inc. Vice-President in charge of Public Relations 55,804 • 17,750 Thomas P. Connors Director of Traffic 39,457 11,744 John A. Crowe(c) Senior Vice-president 141,100 -14,446(g) A. Gordon Findlay(c) Vice-President, American Cigarette and Cigar 49,482 16,250 Charles Ganshow(c) Division, and Chief of Cigar Sales Vice-President, American Cigarette and Cigar 51,729 11,286 John G. Hager, Jr. Division, and Deputy Comptroller Manager of Louisville, Ky., Cigarette Factory 35,129 11,529 Virgil D. Hager Vice-President, Manufacture 62,322 17,821 Paul M. Hahn(c) President 202,624 14,250(g) Hiram R. Hanmer Director of Research 56,386 14,713 ' Harry L. Hilyard(c) Vice-President and Treasurer 70,357 6,599(g) John R. Hutchings, Jr.(d) President, American Suppliers, Incorporated 30,707 -0- A. LeRoy Janson (c) Vice-President and Comptroller 74,786 17,898 Ferdinand Mallgraf Director of Purchases 47,565 7,182(g) Silas E. Strickland (c) General Manager of Stemmeries, Company 44,407 13,373 George L. Turner and American Suppliers, Incorporated • Vice-President(e) and President, American 44,743(f) 11,098 Robert B. Walker Suppliers, Incorporated Vice-President and Director of Sales 62,322 20,000 George A. Wilkinson Director, Tax Department 44,743 10,021 William B. Young(c) Assistant to the Senior Vice-President 44,743 9,279 Directors and Officers Directors and Officers as a grpup 1,297,536 as a group (a) Capacities referred to were with The American Tobacco Company, unless otherwise indicated. The American Tobacco Company of the Orient, Inc. is, and American Suppliers, Incorporated until its merger into the Company on December 31, 1958 was, an affiliated company engaged in purchase and handling of leaf tobacco. (b) Includes undeferred noncontingent portion of incentive compensation for 1958 under Article XII of the By-Lawa. (c) Also officer of affiliated company or companies. (d) Deceased June 21, 1958. (e) Prior to election as President on June 25, 1958. (f) Remuneration shown is for period subsequent to election as a director effective February 4, 1958. (g) Reflects actuarial reduction resulting from his election (which will become irrevocable upon commencement of benefit payments) to take a reduced pension payable to himself for life and to a beneficiary for life, if the beneficiary survives him. Depending upon actuarial calculations the annual pension payments to four of the individuals indicated as having made such election and to their beneficiaries range from 53°fo to 71°Jo of the annual benefits such individuals would have been entitled to if they had not elected such reduced pensions. The pension payment listed in the table for the remaining individual is 80°fo of the amount he would have been entitled to, and his beneficiary will receive annual payments of 40°fo of such amount if she survives him. The deferred portion of incentive compensation under Article XII of the By-Laws accrued since 1957 (the first year for which it was provided) is payable to each participant in equal annual con-t tingent installments during the ten years following the close of the year in which his employment by the Company terminates. The respective. amounts of deferred incentive compensation accrued for 1958 for the directors and officers referred to in the above table and, in parentheses, the respective annual installments to be paid to them after termination of employment in respect of deferred incentive com- 5 Ln 0 0 w ~ tn tA a 10

pensation accrued since 1957 are as follows: Orpheus D. Baxalys, $4,854, ($927); Alfred F. Bowden, $8,304, ($1,621) ; Thomas P. Connors, $3,457, ($645) ; John A. Crowe, $66,100, ($13,102) ; A. Gordon Findlay, $6,982, ($1,052) ; Charles Ganshow, $7,729, ($1,506) ; John G. Hager, Jr., $3,129, ($579) ; Virgil D. Hager, $12,322, ($2,065) ; Paul M. Hahn, $82,624, ($16,377) ; Hiram R. Hanmer, $8,386, ($1,638) ; Harry L. Hilyard, $10,357, ($2,035) ; John R. Hutchings, Jr., $2,054, ($1,205) ; A. LeRoy Janson, $14,786, ($2,478) ; Ferdinand Mallgraf, $7,065, ($1,339) ; Silas E. Strickland, $6,407, ($949) ; George L. Turner, $7,393, ($1,006) ; Robert B. Walker, $12,322, ($2,065) ; George A. Wilkinson, $6,743, ($1,307) ; William B. Young, $6,743, ($1,307) ; and Directors and Officers as a group; $284,417, . , ($55,201). the Company and its subsidiaries. No amount was set aside or accrued during the Company's last fiscal year for pension or retirement benefits proposed to be paid under any existing plan by the -Company or any of its subsidiaries to any officer or director of the Company. The Retirement Plan for employees covers approximately 16,000 regular full-time employees of The aggregate remuneration for the fiscal year 1958, from the Company and its subsidiaries, directly or indirectly, on an accrual basis, of all the directors and officers of the Company as a group, was approximately fourteen one-hundredths of 1% of the Company's consolidated net sales. MISCELLANEOUS Promptly after the meeting stockholders will be mailed a return postcard on which they will be able to indicate their desire to receive a copy of the summary of the Annual Meeting. ' The Company will provide transportation from New York to Flemington, N. J., and return by chartered buses at Company expense for stockholders of record who notify John W. Hanlon, Secretary, The American Tobacco Company, 150 East 42nd Street, New York 17, New York, in writing not later than March 24, 1959 that they desire such transportation. The chartered buses will leave from Gates 8, 10 and 12 on the lower level of the Port Authority Bus Terminal, 8th Avenue and 41st Street, New York, New York, promptly at 10:00 A. M. on April 1, 1959 and will return to this terminal from Flem- ington after the meeting. Expense of Solicitation. The expense of the solicitation of proxies for this meeting, including the cost of mailing, will be borne by the Company. In addition to mailing copies of this, material to stockholders, the Company will request persons who hold stock in their names or custody or in the names of nominees for others, to forward copies of such material to those persons for whom they hold stock of the Company and to request authority for the execution of the proxies. To the extent necessary in order to assure sufficient representation at the meeting, officers and some regular employees of the Company and, at an estimated cost of about $11,000, approximately 4 employees of Philip G. Cameron Company sill request the return of proxies by telephone, telegram or in person. The amount of the expense to be borne by the Company will depend upon the volume of shares represented by the proxies received promptly in response to the Notice of Meeting. If proxies are not received promptly, it may be necessary for -tlie Company to send telegraphic solicitation to those stockholders who have not responded. Stockholders•who do not intend to be present at the Meeting are urged to send in their Proxies with- out delay. Prompt response is helpful, and your cooperation will be appreciated. February 13, 1959. 6

Annual RepOf t FOR THE YEAR ENDED DECEMBER 3'1, 9958 CONTENTS HIGHLIGHTS . . . . . ... . . . . PRESIDENT'S LETTER .. OPERATIONS AT A GLANCE . CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS . . . . . . CONSOLIDATED BALANCE SHEETS : . . . NOTES TO STATEMENTS . SUPPLEMENTARY FINANCIAL INFORMATION AND AUDITORS' CERTIFICATE . . . . . TEN-YEAR FINANCIAL REVIEW . . DIRECTORS AND OFFICERS . . . . . . . 2 3 12 13 14 17 is 20  Executive Office, I50 East 42nd Street, New York 17

HIGHLIGHTS I Per Common Share Net income . . Dividends paid . Net sales . . . . . . . . . • Income, before taxes on income .... Net income . . . ... . . . . . 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 . . . . . . . . . 1958 $8.55 5.00 $1,103,023,397 124,607,844 58,845,844 35,729,596 23,116,248 716,070,588 142,307,069 573,763,519 88,202 7,177 1957. $8.28 5.00 $1,098,092,746 118,604,650 57,094,650 35,729,596 21,365,054 740,482,648 171,137,745 569,344,903 86,998 7,187 . I u7 0 2 0 w N N

r16 THE PRESIDENT'S LETTER- February 4, 1959 To Our Stockholders fTJHIS report covers operations of The American Tobacco Company, includ- ing wholly-owned subsidiaries, for 1958. Net income in 1958 was the highest in the history of the Company, $58,845,844 as compared with $57,094,650 in 1957. The year 1958 was the fourth successive year in which net income has reached a new high. Dollar sales were $1,103,023,397 as compared with $1,098,092,746 in 1957. Fourth-quarter dollar sales were $12,518,608 higher than those for the fourth quarter of 1957. ' Total unit cigarette sales during the fourth quarter of 1958 were higher than in the comparable quarter of 1957. Total unit sales for the first three quarters were lower than in 19.57, resulting in lower unit ciga- rette sales for the full year. SALES PALL MALL showed a substantial gain in unit volume during 1958, keeping and improving its position as the nation's -leading king-size ciga- rette. It is the second largest-selling cigarette among all brands. According to independent estimates, PALL MALL accounts for approximately two-thirds of all nonfilter king-size -sales and about one-fourth of all nonfilter ciga-e rette sales in the U. S. Although industry sales of nonfilter standard-size cigarettes continued to decline, LUCKY STRIKE remained the third largest-selling cigarette in America. Unit sales of LucKY STRIKE decreased in line with the decline reported for the standard-'size market as a whole. In June 1958, your Company announced a radically new filter tip for the HIT PARADE Cigarette. The new tip, with 400,000 filter traps, gives HIT PARADE higher filtration. of smoke solids (which include nicotine and . so-called "tars") than any other leading brand. . In July a second radically new product, the DUAL FILTER TAREYTON Cigarette, was introduced. TAREYTON's dual filter comprises two separate filters in each cigarette: a pure white outer filter, plus an inner filter with 3

Sates 1949 1950 1951 1952 1953 1954 1955 1956' 195)' 1958' •includes ell wAolqowned suDsidi.ries 0 Havana line. activated charcoal, which has been scientifically proved to make cigarette smoke exceptionally mild. This unique filter tip enables DuAL FILTER TAREYTON to offer the smoker not only high filtration of smoke solids 'but high filtration of smoke vapors as well, thus delivering a-mild and truly "balanced" smoke. The Company's filter cigarette volume during the last half of 1958 was substantially higher. than in the first half. Additional measures to increase our filter cigarette volume are now in preparation. Export (tax-free) cigarette sales were lower in 1958 than in 1957, the major factor being reduced requirements for tobacco products by , Armed Forces installations overseas. Unit sales of cigarettes manufactured by J. Wix & Sons Limited, the Company's English subsidiary, were higher in 1958 than in 1957. Unit sales of the Company's cigars increased during 1958. In the domestic cigar field, EL Roi-TAN increased in volume and strengthened its position as America's largest-selling 10¢ cigar. A new Rol-TAN Cigarillo retailing at 5y was introduced early in 1958 and is now av,ailable nationally; during its first year the Roi-TAN Cigarillo -showed very satisfactory unit sales volume. Combined unit sales of your Company's clear Havana cigars increased. These brands, which include LA CORONA, ANTONIO y CLEOPATRA and BOCK y CA, continue to comprise the largest-selling Bonded Clear 4 11

4 Your Company's smoking tobacco brands-including HALF AND HALF and "BULL" DURHAM-increased their sales volume during 1958. • In view of the fact that industry and Company sales of plug -chewing tobacco have been declining steadily for a number of years, your Manage- ment in March 1958 sold the eleven plug tobacco brands formerly manu- factured in Louisville. In 1957 these brands had accounted for less than one-fiftieth of 1% of the Company's total sales revenue, this volume being too small to yield a profit. The plant facility at Louisville formerly used for plug manufacture will be available for use in our cigarette operations. A thorough study of the Company's cigarette, cigar and smoking tobacco packaging has been undertaken. Improvements made in 1958 in- clude a pouch-in-box packing for HALF AND HALF Smoking Tobacco, a com- pletely new package design for DUAL FiLTLR TAREYTON Cigarettes and new packirigs for LA CORONA Cigars. This packaging review is continuing. EARNINGS Another new record for earnings-the fourth in a row-was estab- lished by your Company in 1958, as net income increased to $58,845,844 compared with $57,094,650 in 1957.* The extent of the gain in earnings was diminished by the heavy promo- tional costs incident to the introduction of a new and highly effective filter on our HIT PARADE brand and by the marketing of the new DUAL FILTER TAREYTON Cigarette. Net income per Common share in 1958 amounted to $8.55 compared with $8.28 in 1957. DISPOSITION OF EARNINGS . For the 54th consecutive year, 'dividends were paid on the Common stock. The total during 1958 amounted to $5.00 per share, consisting of four regular quarterly dividends of $1.00 each and an extra dividend of $1.00. The 214th dividend on the Common stock was declared on January 27, 1959, and is payable on March 2, 1959, to stockholders of record February 10, 1959. This payment includes a regular dividend of $1.00 per share and an extra dividend of $1.00 per share, making a total dividend of $2.00 per share to be paid on the Common stock on March 2, 1959. The total amount of dividends paid in 1958 on both. Common and Preferred stock was $35,729,596, the same as in 1957. Earnings retained for use in the business totaled $23,116,248 as against $21,365,054 in 1957. 5 -6

FINANCES • Includes all whollyowned subsidia,ief Cash on hand and in banks at December 31, 1958, was $20,284,075 compared with $22,971,526 at the end of 1957. Notes Payable at Decem- ber 31, 1958, were $66,000,000 compared with $92,350,000 at the end of 1957: Average Notes Payable during 1958 was $70,800,000, considerably below the figure of $105,600,000 for 1957. The combination of lower Notes Payable and more favorable interest rates than in 1957 resulted in a significant reduction in the Company's interest costs. Total interest on Notes Payable in 1958 was about $2,000,000 lower than in 1957. Long-term debt was $13,928,000 lower at the end of 1958 compared with the previous year, as a result of retirement of debentures through oper- ation of the Sinking Funds. This reduction, together with the addition of $23,116,248 of retained earnings to net worth, produced a further improve- ment in the ratio of funded debt to net worth. Thus, funded debt was 34% of net worth at the end of 1958 compared with 88% ten years ago. In the absence of unusual developments, your Management does not anticipate any need for new financing in the foreseeable future. TAXES Federal and other taxes on income amounted to $65,762,000 in 1958 compared with $61,510,000 in 1957. Taxes on income in 1958 amounted 6

~ .s.a . . S to $10.10 per Common share compared with net income of $8.55 per share. Excise taxes on your Company's products totaled $465,779,000 in 1958. As previously reported to stockholders, the method of liayment of these excise taxes imposes an unfair financial burden on the industry, and it had been hoped that the return and deferred payment system authorized by the Revenue Code of 1954 would provide partial relief. However, neither the Treasury Department nor Congress has taken any further action to put into effect this more equitable system of payment for cigarette and 4 smoking tobacco excise taxes. . In addition to the income taxes and excise taxes mentioned above, social security and other taxes amounted to $42,389,000. Including these amounts, your Company's total tax bill amounted to $573,930,000 for the year 1958. . CAPITAL EXPENDITURES The program of maintaining plant and equipment at maximum effi- ciency was continued during the year 1958. Capital expenditures were about the same as in the previous year, totaling $10,413,000, compared with $10,829,000 in 1957. Major expenditures were made for the purchase of modern machinery and equipment in both cigarette and cigar plants in order to achieve maximum production efficiency and greater control of quality. Net Inco me, Divlde ds an d Income Reinvest ~ Millions oi Dollars -- 60 - -- -- -- - I I ~ ~ ~ ~ ~ 50 NET INCOME .. i i J - 45 --- ~ I ~ ~ INCOME 40 , I + REINVESTED r•- ed 1 1 ~_ -- 1 ~-~~ --- -- , PREFERRED AND ~ COMMON. DIVIDENDS ~- - ~ ~-, ! ~ 5949 1950 1951 1952• 1953 1954 1955 1956• 1957• 1958• N- - •ledudes atl whotlypwned subsld:a.ks . . 7

~ j Net Worth Compared with Long-Term Debt MdLon.Of OWI.r. I q 500 l © NET WORTH LONG-TERM DEBT 400 '300 200 100 0 -Inctudes all wAolly.owned suDsld7.ries Net land, buildings, machinery, etc., increased from $58,154,475 at the end of 1957 to $62,639,794 at the end of 1958. Depreciation charged to cost and expense in 1958 amounted to $4,737,116. ' 1 1949 1950 1951 1952 1953 1954 1955 1956' 1957e 1958' LEAF TOBACCO Production of leaf tobacco in the U. S. last year was 5% above the previous year's level. As usual, your Company's purchases on the auction markets were confined to the better grades, in line with our long-established policy of manufacturing products of the highest quality. The 1958 crop of flue-cured tobacco was about 10% greater than that produced in 1957. With the sale of- flue-cured tobacco on all markets having been completed before the end of the year, the average selling price for the entire 1958 crop was 57.7~ per pound, which represents a 5% increase over the previous year and establishes a new record. The price support level for the 1958 crop was 54.6¢ per pound. The 1958 Burley crop production was a little smaller than the previous year. Approximately 80% of the 1958 crop of Burley tobacco had been sold on the auction markets by the end of 1958. Average market prices through the end of the year for the crop were 8% higher than the com- parable period in 1957, averaging 66.5¢ per: pound compared with a price support level of 55.4¢ per pound. For many years the buying, storing and processing of the Company's do- 8 LA 0 0 w N co

mestic leaf tobacco requirements have been handled by a wholly-owned sub- sidiary known as American Suppliers, Incorporated. This organization has been responsible for maintaining the high standards in leaf tobacco which have made your Company's products famous and a byword for quality. ~ In order to eliminate certain duplications inherent in a separate cor- porate structure and to effect greater convenience and efficiency in opera- tion, this subsidiary was merged with The American Tobacco Company as of December 31, 1958. However, the American Suppliers organization will be kept intact as a separate operating Division of The American Tobacco Company, thus insuring a continuation of the capable work performed by this group. Since the operating results of American Suppliers, Incorporated, have always been consolidated in the report of the Company, the merger will not have any significant effect upon the operating results of The American Tobacco Company. ADVERTISING AND SALES PROMOTION Maximum competitive effectiveness at minimum cost is the object of the Company's advertising on behalf of its major brands. Similarly, our Sales Organization concentrates its efforts in the more heavily populated areas and in the larger-volume outlets where sales potential is greatest. During 1958, two of our newspaper advertising campaigns were awa•rded citations for effectiveness: the PALL MALL campaign, "Get Satis- fying Flavor-So Friendly to Your Taste," and the LucKY STtiiKE cam- paign, "Get the_Honest Taste of a LvcxY STRIKE." Advertising is conducted via magazines, newspapers, radio, television, car cards, billboards and other media. Sales messages in national media are supplemented• by local advertising in key markets. Our Sales Organization reinforces the advertising effort at the point of sale by supplying mer- chandising aids to retail outlets, by direct sampling of consumers in-the field, and by securing wide distribution for our brands. SMOKING AND HEALTH Although public pronouncements by anti-c.igarette theorists continued, the theory itself has not been substantiated. On the contrary, recent research •has yielded negative evidence with respect to anti-cigarette charges. In his 1958 Report, Dr. Clarence Cook Little, Scientific Director of the Tobacco Industry Research Committee, notes in substance that: 1. All animal experiments involving direct inhalation 'of tobacco smoke have failed to produce bronchogenic cancer, and even tobacco 9 i

smoke condensates in heavy dosages introduced into animals' res- piratory systems have failed to do so. 2. Evidence of the importance of factors of a different nature as possibly relevant to the study of causation of constitutional disease has greatly increased. 3. An examination of the reported statistical association between cigarette smoking and lung cancer reveals two facts clearly. First: Non-smokers develop the ailment. Second: The overwhelming majority of smokers do not. Your Company, along with other manufacturers, leaf growers, dealers, warehQusemen and cooperatives, continues to support the research program of the Tobacco Industry Research Committee, now in its sixth year. All- grants are made upon recommendation of an Advisory Board of independent scientists, doctors and educators; recipients of grants are assured complete scientific freedom in conducting their investigations and reporting their results. The Company's own research on the composition of tobacco and tobacco smoke, now in its thirty-eighth year, continuess in our Richmond Laboratory. In 1958 our Research Laboratory became the first industrial research lab- oratory to receive the Distinguished Service Award of the Virginia Academy of Science, and was cited as "International Leader in Tobacco Research, Befriender of Science in Community Affairs, and Outstanding Contributor to the Advancement of Science in America." Last year your Company and thirteen other tobacco manufacturers , formed The Tobacco Institute, Inc., with headquarters in Washington, D. C. The Tobacco Institute works to create a better public knowledge and under- standing of tobacco and the tobacco industry. PERSONNEL The Directors record their deep sense of loss at the passing, on June 21, 1958, of Mr. John Richard Hutchings, Jr. As President of the Company's domestic leaf-buying organization, Mr. Hutchings bore a major share of the responsibility for maintaining the high quality of leaf used in the Com- pany's products. Even more important than his personal devotion to this task was his great capacity for communicating to those under him his . . 10

feeling for tobacco quality and his loyalty to the Company and its opera- tions. Mr. Hutchings had served the Company for 42 years. .STOCKHOLDERS' ANNUAL MEE7ING . The Annual Meeting of Stockholders will be held • on Wednesday, April 1, 1959. Formal notice of this meeting, together with the proxy and .~ proxy statement, is enclosed with this report. In keeping with the trend in modern corporate procedure the new form of punch-card proxy, which is enclosed, has been adopted. Before closing this letter I should like to acknowledge the many letters relating to the Company's affairs which I have received from stockholders during the past year. Particularly gratifying are those which express a sincere loyalty to the Company's products and an active interest in the promotion of the Company's various brands. I should 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 helped to make the year's results possible. PAUL M. HAHN President

The Comp(my received for goods it sold and fi•om dividerrds, interest (IJ2d ))21SCelI(I1Zeolls .. . . .

Consolidated Statements of Income and, Retained Earnings FOR YEARS ENDED DECEMBER 31 Net Sales . . . . . . . . . . .. . . . Cost of sales, selling, general and administrative expenses . . . . . . . . . . . , Operating Profit . Other income . . . 1958 $1,103,023,397 969,662,731 133,360,666 769,918 134,130,584 Interest and related charges . . . . . . . ' . Other deductions from income . . . . . . . Tota l deductions . . . . . . . Income, before taxes on income . . . . . ..'. . Federal and other taxes on income ...... Net Income . . Retained earnings, beginning of year_ ...... 8,005,598 1,517,142 9,522,740 124,607,844 65,762,000 58,845,844 204,178,185 263,024,029 Cash Dividends: Common stock, $5 per share . Preferred stock, $6 per share . Total dividends . . . . Retained earnings, end of year (Note 2) . 32,562,610 " 3,166,986 35,729,596 $ 227,294,433 1957 $1,098,092,746 969,805,141 128,287,605 897,225 129,184,830 9,980,877 599,303 10, 580,180 118,604,650 61,510,000 57,094,650 182,813,131 239,907,781 1 1/ 32,562,610 ~ 3,166,986 35,729,596 $ 204,178,185 Depreciation provided and charged to costs and expenses amounted to $4,737,116 in 1958 and $4,194,785 in 1957.

Consolidated Balance Sheets DECEMBER 31 ASSETS Cash . . . . . . . . . . . . . . . . w Accounts receivable, custonlers . . . . . . . . Leaf tobacco, manufactured stock, operating supplies, etc., at average cost . . . . . . . . . . . Miscellaneous accounts receivable . Total current assets . Investments in and advances to unconsolidated subsid- iaries, at amounts not in excess of cost (Note 3) .. • Insurance deposits and miscellaneous investments .. Land, buildings, machinery, etc., at cost, less allow- ance for depreciation, 1958, $51,080,393; 1957, $48,497,716 . . . . . . . . . . . . . Prepaid expenses and deferred charges . Brands, trade-marks, patents, good will, etc. . 14 1958 $ 20,284,075 46,875,661 647,608,800 1,302,052 716,070,588 10,490,797 1,281,122 62,639,794 5,081,776 . 1 $795,564,078 . 1957 $ 22,971,526 45,180,236 671,380,515 950,371 740,482,648 10,603,797 1,865,235 , 58,154,475 4,100,350 1 $815,206,506 i . ~ U1 . Of . , 'm

I ~- LIABILITIES Notes payable . . .' ' . . . . . . . . . . Loan 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 4) . . . . . . . . . . . Total current liabilities . . . . . Debentures (Note 4) . . . . . . . . . . . STOCKHOLDERS' EQUITY Capital stock (Note 5): 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 2) . . . . . . . . Tota I . . . . . . . . . . DECEMBER 31 1958 $ 66,000,000 50,263,020 14,731,303 791,746 10,521,000 142,307,069 165,402,000 307,709,069 52,783,100 162,813,050 44,964,426 260,560,576 227,294,433 487,855,009 $795,564,078 1957 $ 92,350,000 835,098 52,132,302 13,428,599 791,746 11,600,000 171,137,745 179,330,000 350,467,745 52,783,100. 162,813,050 44,964,426 260,560,576 204,178,185 464,738,761 $815,206,506. 15 i

Notes Accompanying Financial Statements 1. The accompanying consolidated financial statements include all wholly-owned subsidiaries. At December 31, 1958, American Suppliers, Incorporated, a wholly- owned subsidiary, was merged into the parent company. . 2. Under the provisions of the indenture relating to the Twenty Year 3% Deben- .tures, due January 1, 1968, cash dividends declared on common stock and pay- ments made in purchasing shares of any class of the Company's stock subsequent to December 31, 1947; may not exceed the aggregate of $16,000,000 and con- d solidated net income earned subsequent to December 31, 1947, less dividends ' paid on preferred stock. At December 31, 1958, approximately $193,100,000 of retained earnings was free of this restriction. 3. The net tangible assets applicable to the investments in and advances to uncon- solidated subsidiaries at December 31, 1958 and 1957, amounted to $14,431,385 and $13,939,672, respectively. Dividends and interest received from these sub- sidiaries were: 1958, $604,296; 1957, $605,803; the equity in earnings applicable thereto amounted to: 1958, $1,056,961; 1957, $1,128,360. - 4. . / Debentures outstanding at December 31, 1958, comprise: Principal Amounts Redeemable Redeemable After Within One Year' Dec. 31,1959 Shares Authorized Shares Issued Preferred . . . . . . 540,106 527,831 Common . . . . . . 10,000,000 6,512,522 6. A noncontributory Retirement Plan providing unfunded (pay-as-you-go) bene- fits 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 $1,000,140 in 1958 and $922,509 in 1957. Substantially larger annual expenditures would be required to fund the Plan. Twenty year 3%, due April 15, 1962 ...: $ 3,447,000 $ 36,076,000 Twenty year 3%, due January 1, 1968 . . . 3,000,000 42,000,000 Twenty-five year 3%, due October 15, 1969 .. 3,151,000 48,196,000 Twenty-five year 31/4%, due February 1, 1977 . 923,000 39,130,000 $10,521,000 $165,402,000 •Estimated principal amounts to be redeemed through sinking fund operations at prices as provided by the indentures. 5.. Capital stock at December 31, 1958, comprises: 16

Supplementary Financial Information Inventories • Leaf tobacco . . . . . . . . . . . . . . . . . Manufactured stock . . ... . . . . . . . . . . - Supplies . . . . . . . . . . . . . . . . . . Revenue stamps . . . . . . . . . .. . ... . . . TOTAL . . . . . . . . . . . . ... . . . . --December 31 1958 $578,305,788 49,494,792 18,150,169 1,658,051 $647,608,800 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 revenue stamp inventories are priced at actual cost. Land, Buildings, Machinery, etc. Gross Land and buildings . . . . . . . . . . $ 50,909,625 Machinery and equipment . . . . . . . 53,422,603 Office furniture and equipment ...... 3,029,923 Automobiles and trucks . . . . . . . . 3,GG5,4G4 Construction in -process . . . . . . . . 2,692,672 TOTAL . . . . . . . . . . . . $113,720,187 December 31,1958 Allowance for Depreciation $25,507,289 22,104,093 1,810,327 1,658,684 $51,080,393 1957 $612,314,722 39,837,215 18,138,386 1,090,192 $671,380,616 Net $25,402,336 31,318,410 1,219,596 2,00G,780 2,692,672 $62,G39,794 Report of Independent Certified Public Accountants The Board of Directors and Stockholders of THE AMERICAN TOBACCO COMPANY: We have examined the consolidated balance sheets of THE AMERICAN TOBACCO COMPANY as of December 31, 1958 and 1957 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 of the companies 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 fairly the consolidated financial position of The American Tobacco Company and its wholly-owned subsidiaries as of December 31, 1958 and 1957, and the consolidated results of their operations for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis. . ' ' LYBRAND, Ross BROS. & MONTGOMERY New York, February 3,1959. 17

Ten-Year Financial Review IN THOUSANDS (exceptpershareamounts) NET INCOME r.- + DECEMBER 31 19580) NET SALES $ ' 858,996 871,621 942,552. 1,065;738 1,088,380 1,068,579 1,090,845 1,091,206 1,098,093 1,103,023 INVENTORIES $531,558 532,679 594,544 640,753 651,044 632,143 656,241 655,116 671,381 '647,609 INCOME . TAXES BEFORE TAXES ON INCOME $ 74,327 76,725 80,411 78,352 99,232 91,056 113,061 111,352 118,605 124,608 $28,652 34,992 47,301 44,283 58,006 48,005 61,399 59,663 61,510 65,762 AMOUNT $45,675 41,733 33,110 34,069 41,226 43,051. 51,662 51,689 57,095 58,846 AVAILABLE PER COMMON SHARE 121 $7.90101 .7.17tot 5.57(a) 4.79rb1 5.901b1 6.121d . 7.45(c) 7.45(c) 8.28(c) 8.55(c) PLANT AND CURRENT WORKING EQUIPMENT ASSETS CAPITAL (NET) $583,762 593,026 668,234 712,654 725,577 703,086 727,648 724,423 ` 740,483 716,071 ,• $450,830 459,653 . 456,056 551,255 548,305 550,454 555,856 566,581 569,345 573,764 $43,507 43,747 44,248 44,480 46,571 47,189 49,058 52,216 58,154 62,640 NOTES: (1) Includes all wholly-owned subsidiaries. ' (2) Based on shares as follows: (a) 5,378,425; (b) 6,454,110; (c) 6,512,522. (3) After deducting "Brands, trade•marks, patents, good will, etc " ~ 8 (4) Comprises notes payable to banks and to others, loan payable by British subsidiary and funded debt redeemable within one year.

I AND ITS CONSOLIDATED SUBSIDIARIES COMMON PREPERRED 4 AMOUNT $21,514 21,514 21,514 23,934 25,816 28,654 28,655 32,563 32,563 32,563 DIVIDENDS PER SHARE ($6 PER SHARE) RETAINED SINKING FUND EARNINGS REQUIREMENTS VEAR $4.00 $3,162 $20,999 $ 9,749 4.00 3,162 17,057 9,942 4.00 3,162 8,434 ' 10,154 4.00 3,162 6,973 10,377 4.00 3,162 12,248 11,989 4.40 3,167 11,230 12,261 4.40 3,167_ 19,840 12,532 5 00 167 3 15 959 12 839 . , .. , , 5.00 3,167. 21,365 13,144 5.00 3,167 23,116 13,468 DEBT 1 TOTAL ASSETS (3) FUNDED . SHORT TERM (4) t i NET WORTH (3) BOOK VALUE PER COMMON SHARE (3) $650,507 $226,375 $ 89,694 $290,335 $44.18- 657,405 , 215,653 83,722 307,392 47.35 734,480 205,430 149,456 315,826 48.92 783,154 243,570 102,950 377,074 50.26 798,870 231,266 105,107 390,332 51.83 775,364 218,967 91,575 403,765 53.89 725 801 206 328 101,387 423,605 56.94 , , , _. --- 404 794 193,188 91,555 443,374 59.98 , -. -- 815,207 179,330 104,785 464,739 63.26 795,564 165,402 76,521 487,855 66.81. i I I DECEMBER 31 1952 'y ... ,, 1953 ~ 1954 ; 1955 ~ _ 1956(1) 1957117 ~ 195E~n ) i un 0 0 w N- 19

DIRECTORS ORPHEUS D. BAXALYS ALFRED F. BOWDEN THOMAS P. CONNORS JoHN A. CROWE A. GORDON FINDLAY CHARLES GANSHOW JOHN G. HAGER, JR. VIRGIL D. HAGER PAUL M. HAHN HIRAM R. HANMER HARRY L. HILYARD A. LEROY JANSON FERDINAND MALLGRAF JOHN B. SPARROW SILAS E. STRICKLAND GEORGE.L. TURNER ROBERT B. WALKER 'GEORGE A. WILKINSON WILLIAM B. YOUNG OFFICERS PAUL M. HAH N, President JOHN A. CROWE, Senior Vice President ALFRED F. BOWDEN, Vice President VIRGIL D. HAGER, Vi.cePresident HARRY L. HILYARD, Vice President and Treasurer A. LEROY JANSON, Vice President and Comptroller ROBERT B. WALKER, Vice President CHARLES GANSHOW, Deputy Comptroller J. WESLEY DALE, Auditor JOHN W. HANLON, Secretary EDWARD D. FLAHERTY, SeniorAssistant Auditor WALTER A. KENNEDY, Assistant Auditor FREDERICK W. KENNY, Assistant Secretary JOSEPH R. WATERHOUSE, Assistant Treasurer FRANCIS X. WHELAN, Assistant Treasurer / Executive Office w - 150 EAST 42ND STREET, NEW YORK 17, N. Y. Corporate Office 117 MAIN STREET, FLEMINGTON, N. J. Transfer Agent N V•7 N J O GUARANTY TRUST COMPANY OF NEW YORK, NEW YORK 15, N. Y. Registrar . CITY BANK FARMERS TRUST COMPANY, NEW YORK• 15, N. Y. 20

Your company's principal products which make your dividends possible CIGARETTES Lucl:y Strike - A blend of the finest Turkish and domestic tobaccos. The LUCKY STRIKE process "It's Toasted" enhances the honest taste of these fine tobaccos. A leader among standard size brands Pall A1all - "Outstanding . . . and they are mild!" - the nation's leading king size cigarette and also the second largest among all brands. PALL MALL'S famous length of fine tobacco travels and gentles the smoke - makes it mild. And you can light either end ! Herbert Tareyton - Its distinctive flavor and mildness have been famous for more than 40 years. Full king size with the tip that stays so pleasantly firm and fresh ' Dual Filter Tareyton - The high filtration dual tip comprises a pure white outer filter plus an exclusive inner filter with Activated Charcoal. It has been definitely proved that Activated Charcoal makes cigarette smoke milder and smoother Hit Parade Filter Tip - With more than 400,000 filter traps. Gives highest filtration of any leading filter brand, plus free draw and the full flavor of fine tobacco. In the crush-proof box or the familiar pack The. Company also manufactures SWEET CAPORAL, JoHNNIE WALKER, OMAR, NATURAL and LORD SALISBURY cigarettes. CIGARS • El Roi-Tan - largest selling 100 cigar in America. Also Rol-TAN Cigarillos Golfers at 4c' Ailto•nio y Cleopatra - the mildest clear Havana cigar La Corona "-"Supreme the World Over" - the world's finest cigar at 60 and Bock y Ca •- the original panetela, created in Havana in 1888 "International Brands," among which are LA CORONA, BOCK y CA and HENRY CLAY, are manufactured by subsidiaries of the Company, in Cuba and in the United States. Cabanas - These world-famous cigars are made in Cuba and exported to the United States by a subsidiary of the Company The Company also manufactures CHANCELLOR, a high-grade domestic cigar. SMOKING TOBACCOS Hall and Hal f- the Company's leading granulated plug cut, Burley and Bright. Being made available in pouch-in-box packing for double protection, longer-lasting freshness Blue Boar- American Tobacco's leader among high-grade pipe tobacco blends. Genuine "Bull" Durharn-still far and away the No. 1 "roll-your-own" smoke - Among the Company's other higli-grade smoking mixtures are CARLTON CLUB, HERBERT TAREYTON, OLD ENGLISH CURVE CUT, PERSONAL and SERENE. Other popular-priced brands include COMPASS, CUTTY PIPE, FIVE BROS., HONEST LONG CUT, IVANHOE, LUCKY STRIKE ROLL CUT, PEERLESS (ADAMS), LIBERTY, STANDARD (ADAMS), BUCKINGHAM AND TUXEDO. 0 a