Tobacco Documents Online

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L//IC ~r/I1tC~l(('U Il C~'(~~ll'L:'C'~ l~)71/)f1711,~ A1f~ M\Sn1.11~ATlai ~1'L~in~ai;its - ---- ---- ----- --- - - - -- - --- -- V - -(, ---- ------ --- sum.»zary of sales and income (subjccl to ycar-cnd adju.ctrncnt and audit) Ql'AItTl;lt 1:\I11NC AtAli('il 31 1962 1961 Sales . . . . . . . . . . . . . . . $271,982,000 $270,358,000 Net Income . . . . . . . . . . . . . 15,158,000** 14,673,000 Net Income per share of CommonStock* . . . . . 55¢** 53~ Taxes on Income . . . . . . . . • . . . 17,792,000 17,211,000 *statcd in terms oJ the new stoch., after 2-/or-I split voted on April 4, 1962. k'"inclurles nonrecurring income credit equivalent to If per Common share. Note: 1961 Tfigures adju.ctcd to c.rchrrrc J. Wix & Sons, Ltd., /ormcr subsidiary exchanged c/Jcrtivc January 1, 1962 for an intcrest in Gallaher, Ltrl.

Annual lieport f or the year ended . December 31, 1961 l ; a Q a ~o a~~a~ F,xecxtire Office, 150 East 42nd Street, New 1'orL-17 CONTENTS Niglrl ights . . . . . . . . . . . . . 2 President's Letter . . . . . . . . . . 3 Operations at a Glance . . . . . . . . . 14 Consolidated Statements of Income and Retained Earnings . . . . . . . . 15 Consolidated Balance Sheets . . . . . . . 16 Notes to Statements . . . . . . . . . 18 Supplenzentary Finanuial Inforniation . . . 19 Auditors' Cert i ficat e . . . . . . . . . 20 Directors and Officers . . . . . . . . . 21 Ten-Year Fiirancial Rei•iew . . . . . . 22 Your Company's Principal Products . . . . 24

(/1lf .."fi12G11C-Ctl2 C/Ui•CtCCCK.Ch77lJl1)1!i AND WHOLLY-OWNED SUBSIDIAORIE OS ...Iliglrliglrts a. I 1961 1960 Per Common Share Net operating income . . $5.01 $4.62 Provision for possible loss in 1960 (credit adjust- ment in 1961 for partial recovery) of leaf inven- tory in Cuba, less applicable federal income tax .02 .06 Net income . . . . . . . . . . . . . 5.03 4.56 Dividends paid . . . . . . . . . . . . 2.80 2.721h Net sales . . . . . . . . . . . . . . $1,288,398,735 $1,215,342,819 Operating income, before taxes on income ... 148,070,315 135,843,166 Net income (after provision in 1960 for possible loss of leaf inventory in Cuba and credit adjust- ment in 1961 for partial recovery) ..... 68,734,046 62,522,313 Dividends paid (common and preferred) . . . . 39,637,109 38,660,244 Portion of net income invested in assets used in the business and to provide for debenture sinking fund requirements . . . . . . . . . . 29,096,937 23,862,069 Current assets, December 31 . . . . . . . 827,902,278 771,818,513 Current liabilities, December 31 237,905,218 175,829,476 Net working capital, December 31 . 589,997,060 595,989,037 Number of stockholders, December 31: Common . . . . . . . . . . . . . 89,534 89,440 Preferred . . . . . . . . . . . . . 7,079 7,105

FEBRUARY 7, 1962 The President's Lef tc>>• i TO OUR STOCK I I OLl)F.RS THis xf•'ToxT covers operations of The American Tobacco Company, including wholly-owned subsidiaries, for 1961. Dollar sales in 1961 were $1,288,398,735, an increase of $73,055,916 over the 1960 figure, $1,215,342,819. This was the third successive year in which dollar sales gained in excess of $50,000,000. Unit cigarette sales were higher in 1961 than in 1960, both in the United States and abroad. Net income in 1961 was the highest in the history of the Com- pany, $68,734,046 compared with $62,522,313 in 1960. Net income has set new records in six of the last seven years. Sales Again in 1961 the Company's cigarette volume increased in both the filter and the non-filter fields. PALI, MALL, the Company's largest-selling brand, added sub- stantially to its unit volume. Comments from the smoking public c•onfirm that PALL NIAL1,'s Wide popularity rests on the intrinsic quality and good taste of its tobacco blend. DUAL FILTEx TAREYTON Cigarettes increased in sales during 1961, continuing the sales rise which began with the brand's intro- duction in July 1958. The D1tA1, Fn,TFx TAxM-'ror Cigarette offers the dual filter with activated charcoal for mildness of taste, and a tobacco blend of the high quality traditionally associated with the Company's products. Again in 1961 king-size and filter-tip cigarettes attained ]arger shares of the total cigarette market, while standard-size cigarettes accounted for a smaller share. In keeping Avith this trend unit sales of LtrCxY Sj•lflj.j; Cigarettes declined, but at a lesser rate than in 1960. Export sales of the Company's cigarettes manufactured in the United States increased in 1961, as did sales of cigarettes manu- factured and sold abroad by the Company's former British subsidi- ary, J. Wix & Sons Limited. Unit sales of Rol-TAr• Cigars, which account for most of the Company's cigar sales revenue, increased in 1961. Pol-TAN sizes in the 10~- price class achieved a very satisfactory increase, and the brand continues to be America's largest-selling cigar in this class. 3

Sales at Record High F,arnings at Record High Mllliom of Doflan . Mfllion+ of Dollun 1,300 ~ 1,300 150 1JS 1•700 1,400 1,100 1,100 A00 1000 9"Wo 900 Soo aoo 120 105 1937 '37 '31 '33 '36' '37' 'SB' '39' '60• 'dl• *Indud.s oll wholly-ew..d wibddim{a Net Income, Dividends and Income Reinvested ANHon of Dollars d00 - 'Mduda oll whoIly-own.d wb.Wbr{.s Financial Position Stronger ' ~' NCO E REIN EfTED ' NET INCOME 300 100 0 •Induda oll whoflyown.d wb0d{ori.l 4 1952 '33 '54 '53 '36• •370 '3!• '39• '60' 'd1• • Induda ell wholly.own.d wbddioAq U N D (

Roi-TAI. offers more sizes / five 1 than any other cigar in this field. A sixth size, ROI-TAN Fresh Blunt Tips, is now being introduced in this price class. RoI-TAN also offers Golfers in the 4~~ class and Cigarillos and Trumps in the 5~ class. The Company's higher-priced cigars, which include LA CoKONA, ANTONIO y CLEOPATRA and I30cI{ y CA, continue to comprise the ]argest-selling line in the fine cigar field. Two new aluminum-tube packings-LA CORONA Americans and LA CORONA Naturals-were introduced in 1961 and met with excellent consumer acceptance. Combined sales of smoking tobaccos were lower in 1961 than in 1960. However, sales of our principal smoking tobacco brand, HALF ANll HALF, increased. Design improvements in the HALF AND HALF pocket size were made, and the larger size hacki,ngs Nvere com- p]etely redesigned. Page 24 of this report lists the Company's principal products --cigarettes, cigars and smoking tobaccos. Each is a quality leader in its own field, distinguished by fine tobacco and precision manu- facture. Stockholders are urged to enjoy these quality products themselves, to use them as gifts, and to c•all them to the attention of their friends who smoke. By so doing, stockholders can greatly assist the Company's efforts to increase sales and profits. Earnings Reach ~Netc, Iliglt Earnings in 1961 were the best in the history of the Company. Higher sales combined with continued improvement in operating efficiency produced an increase of $6,211,733 or 10 ';~ . in net income, from $62,522,313 in 1960 to $68,734,046 last year. In 1960 a nonoperating charge of $797,292 or 6 cents per Com- mon share was deducted from net income to provide against possible ]oss of leaf inventory in Cuba owned by The American Tobacco Company which ,ve Nvere unable to have shipped to the United States. Early in 1961 Nve received delivery of a portion of this leaf inventory. The net amount of this recovery, $237,622 or 2 cents per Common share, is included in 1961 net income. An additional de- livery of such leaf inventory was received in 1962 prior to the em- bargo on importations from Cuba. The net amount of this recovery, $184,464, Nvill be reflected as a nonoperating credit in 1962 net income. Earnings per Common share, based on 13,025,044 shares out- standing, amounted to $5.03 in 1961 compared Nvith $4.56 in the previous year. ~

I "Q?tiet I'lease! Tobacco Asleep." Leaf inre>itory wortli $661,,680,31,1, is kept priizcipally in 270 storayc sheds near,fartories. Dividends Last year marked the 57th consecutive year in which Common divi- dends «'ere paid by your Company. Total payments in 1961 amotmtec] to $2.80 per Common share, consisting of four quarterly dividends of 70 cents each. Four quar- terly dividends of $1.50 per share were also paid on the Preferred stock. The regular quarterly dit•idend on the Common stock payable on 111arch 1, 1962, has been increased from 70 cents per share to 75 cents per share, which is equivalent to $3.00 on each of the presently outstanding shares on an annual calendar basis. This is the third consecutive year in which Common stock divi- dends have increased. The annual pa}-ment per present Common share increased from $2.50 in 1959 to $2.72?~, in 1960, $2.80 in 1961, and to the rate of $3.00 in 1962. Total dividends paid in 1961 on both Common and Preferred stock amounted to $39,637,109. The remainde1• of net income, or

$29,096,937, was retained for use in the business, compared with $23,862,069 retained in 1960. Sloc•k Split Kec'(pnnnien(led The Board of I)irectors has recommended to stockholders that action be taken to split the Common shares on a 2-for-1 basis. This recom- mendation is to he considered at the Annual Stockholders' Meeting on April 4, 1962. If the 2-for-1 stock split becomes effective, the number of Com- mon shares outstanding on the next dividend payment (late, June 1, 1962, will be double the present number. The increased quarterly dividend rate above-mentioned, applied to twice the number of shares, N~Tould be 377~,( per share, which on an annual basis would be $1.50 per share. I'lllllli('('s Coll/ITlile Slrong The princihal amount of debentures outstanding was reduced by $13,760,000 during 1961 through operation of the Sinking Funds. Total debentures outstanding at December 31, 1961, amounted to $132,536,000, which reflects a reduction of $132,350,000 compared Nvith February 1952 when such debt was at its peak. In April of 1962, $25,1 t)5,000 of the $100,000,000 3 j~ Deben- tures issued in 1942 will become due and payable. This represents the amount of debentures which will not have been redeemed through the operation of the Sinking Fund. Barring unforeseen developments it is anticipated that this maturity can be met out of Nvorking capital, and no new financing is presently contemplated. Notes Payable increased to $98,000,000 at the end of 1961 com- pared Nvith $78,000,000 a year earlier. Notes Payable Nvere gen- erally lower in the earlier part of 1961 and there Nvere no Notes Payable outstanding at several times during the summer months when working capital requirements Nvere at a minimum. However, purchases of leaf tobacco during 1961 Nvere greater than in 1960, resulting in a higher level of Notes Payable in the last half and at the end of the year. Taxes Federal and other taxes on 1961 income including tax applicable to recovery of Cuban leaf totaled $79,831,315 which amounts to $6.13 per Common share compared with net income of $5.03 per Common share. i

Otn• Rcscarch Laboratorl/ in Richm otrd is tTrc 1tttL of q+talify c•on tral. ' :.iai:.i.~-1 ~1,,ill .I-- - .I-- • -- J- - --- r i~ .. -w;~, .^9k, The"nial:irtymachine"printstheLtartcl7iame, rolls tlt c7w pet• i iGLon aroun cl a m c a s i trccl strca?n of Llc•tided tobacco, scals ili c papc•r and slrcars off 1,000 or more cigarettes eacTt iuinzcte. Arra7tying forretail displays of Conipany prodiccts is one of sereral f unctions performed by tlie Sales Otya>iizalion1 50032 5633

I7' ,V Excise taxes of $50G,4£5,000, Social Security and other taxes Nvere also included in the Company's tax bill for 1961, raising the total figure to $700,895,000. Taxes on the Company's products are levied by 47 of the 50 States and by more than 200 cities and counties. While the Com- pany is not required to collect such taxes, they do increase the prices paid for our products by the consumer. Cupital Expen(litures Capital expenditures Nvere $6,467,000 in 1961 compared with $7,838,000 in 1960. The liulk of these expenditures was for new machinery and equipment to improve quality control and operating efficiency in our manufacturing plants. The amount charged to cost and expense for depreciation last year Nvas $5,682,559 as against $5,480,419 in 1960. ILeaf ToLacco The Company's lnn•chases of leaf tobacco in 1961 Nvere in accord- ance «•ith its long-standing policy of "Quality of Product." Production of flue-cured tobacco last year totaled approxi- mately 1,250 million pounds. The average selling price on the auction markets was G3.7~ per pound, about G ;~ above the 1960 level of 59.9~. The Government price support level for the 1961 crop was 55.5~per pound. The harvest of Burley tobacco in 1961 is estimated at close to 600 million pounds. Prices on the auction markets through the end of 1961 averaged GG.S{r per pound compared with G5.2~ in the corresponding period of 1960, an increase of 2.5%,. Approximately 85 j~of the croh had been sold before Christmas. The Government hric•e support level for the 1961 crop was 57.2~, per pound. J. )f'ia• & So»s Limited On January 2, 1962, eeffective as of the beginning of this year, the Company concluded a transaction with Gallaher Limited, a lead- ing cigarette and tobacco manufacturer of the United Kingdom, by which the capital stock of our wholly-owned British subsidiary J. Wix & Sons Limited was exchanged for 7,200,000 ten-shilling units (equivalent to shares) of Gallaher's Ordinary Stock. The shares so acquired represent about 13 /, of Gallaher's Ordinary Stock. 9

... Representative Advertisements Remember how yr ciyarettes usec taste? Luckies still .:_1L: llllfF' f10f$ 1.1 :' Ir . nr a l l ll.l r.lr 7!/I l'j'lUI l Change 1n L"cklcs and yvl somc lastc lor a c.. The net tangible asset value of Wix as of December 31, 1961, amounted to $15,543,272. The value of the Gallaher shares re- ceived by the Company in exchange for its Wix shares, based on the closing price on the London Stock Exchange on the date the transaction was concluded, was approximately $42,000,000. Gallaher Limited ranks second in sales of tobacco products in the United Kingdom. Its leading brands are "Senior Service" (a close challenger for the No. I position among "medium price" ciga- rett.e brands in the United Kingdom), "Nelson" (Tipped), "Park Drive" (Plain and Tipped), "du ll7aurier" (Filter Tip), "Olivier" (Tipped) Cigarettes; "Old Holborn" and "Condor" Toliaccos and "A7anikin" and "King Six" Cigars. Gallaher's sales volume in 1960 (the last year reported )was approximately $896,000,000 and its net profit approximately $16,300,000. Wix is considerably smaller in total volume, with only one important brand, "Kensitas" (Filter Tip and Extra Size). 10

1 i In the past 32 years Gallaher has been the only United Kingdom cigarette manufacturer to expand its share of a growing market consistently over the entire period. Wix has expanded its sales ma- terially in the past few years. Wix sales and profits in recent years have been consolidated with those of The American Tobacco Company and other wholly- owned subsidiaries. In 1960 the contribution of Wix to the consoli- ~ dated sales volume and net profits of the Company was $96,584,441 in sales and $2,363,790 in profits; in 1961 it was 34,448,8~ in sales and $3,171,989 in profits. Beginning with Januar,y 1-,T 92, Wix sales and profits will no longer be reflected in the Company's reports, and sales and earnings figures for past years will be ad- justed on a comparable basis. Gallaher's current annual dividend rate is 20 7o on par value, or 28 cents on each unit, subject, of course, to British and United States income taxes. The Gallaher dividend expected to be paid in ~ May 1962, being a final dividend for 1961, will not be payable on the shares acquired by the Company, whose interest in Gallaher earnings begins in 1962. It is the considered opinion of your Management that this ex- change of shares has broadened the base and improved the quality and potential of your Company's investment in the United Kingdom market. A(Irertising ailr1 Sales Pronnotion Your Company continually strives to increase the sales of its brands, since it is large volume which makes possible the high quality stand- ards at relatively low prices on which our business and our profits are based. National advertising campaigns and the activities of our nationwide Sales Organization are the major means used to strengthen demand for our brands by the smoking public. In advertising its cigarette brands, your Company uses virtu- ally all major media, including newspapers, magazines, television, radio and billboards. Since cigarette smokers in this country have been estimated to number 65,000,000, a balanced program empha- sizing general circulation media is employed. Advertising media usec] for our other tobacco products are more specialized. In all its advertising, the Company places prime emphasis on the enjoyment and relaxation afforded by fine tobacco, and endeavors to match the good taste of its products by good taste in their promotion. The members of our Sales Organization supplement the impact 11

of national advertising by securing the Nvidest possible distribution of our brands, by arranging for their display, for the.placement of point-of-sale material and for other forms of promotion at the retail level, and by direct consumer sampling. In addition, they maintain a constant watch on the storage and stock rotation of our products at both wholesale and retail levels so as to insure that our brands reach the ultimate consumer with freshness and flavor unimpaired. The efforts of both Advertising and Sales I)epartments are under continual detailed review with the object of achieving maxi- mum effectiveness from every dollar spent in these fields. SmoLing and Health Your Company continues to support objective and independent re- All but wte of the Compang's sci•cntcen Directors were premit at tlre 1961 Annual 111eeting of Stockholders. 12

search in this field through the Tobacco Industry Research Com- mittee. Since its formation in 1954, T.I.R.C. has appropriated $5,450,000 for research grants in hospitals, medical schools and re- search institutions throughout the country. Recently the Chairman of the Tobacco Industry Research Com- mittee stated that: "In the last eight years, the cigarette hypotheses have been sub- jected to clinical and laboratory tests throughout the world. Today, while the hypotheses are still alive, they rest almost wholly on associations derived from statistical studies that did not give comparable consideration to other factors. These other factors have been the subject of a growing number of studies in recent years and good progress is being reported. Tobacco use is still under study, by T.I.R.C. and others, but the chemical and laboratory experiments have failed to explain the statistical associations." I ; Personnel On November 25, 1961, Mr. J. Wesley Dale, formerly Auditor, died after 45 years in the service of the Company. Mr. Dale made many contributions to the administration of the Company during his long career, and his passing is reported with a deep sense of loss. Stockholders' Annual 111eeting The Annual Meeting of Stockholders Nvill be held on Wednesday, April 4, 1962. Formal notice of this meeting, together with the proxy and proxy statement, accompanies this report. f > -f It has been a source of great satisfaction to me to receive so many communications from our shareholders during the past year. These letters indicate an active interest in the affairs of the Com- pany on the part of our shareholders. On behalf of the Board of I)irec.tors I should like to express our appreciation for the cooperation of our customers and the loyal service rendered by our employees, both of which have contributed to the achievement of the record results in 1961. PAUL 1\2. HAHN Presi.den t 13

1961 Operations a.t a Glance The Co,nl,any received for goods it sold and froiii interest ancl misccllanc>uus $1,289,068,000 This is how it was used or set aside . 11f $700,895,000 $287;2] l ,000 $225,753,000 .„~ 6,475,000 $ 39,637,000 $ 29,097,000 Taxes (excise, income, social security, etc.) Tobacco (inclucling applicaLle expcnses) lf'ages, Goods, Services, etc. I Interest on Rurro~recl Funds ~ ~ c ~ Diridcncls to Stockholders Earnings Rctnincd to Mcct Future Needs

('O\tiOLII)ATEI) STATF.N1F.\TS OF Income arid Retaiq.d. Earnings X~Jlnt~/t i r~in c/~ul accc ( c n~a n~i AND WHOL LY-OWNED SUBSIDIARIES For Years E?zdcd December 31 1961 1960 Net Sales . . . . . . . . . . . . . . • selling, general and administrative Cost of sales $1,288,39 V,7 ~5 iis3s~98`~`~ $1,215,342,819 , expenses . . . . . . . . . . . . . • 1,134,096,901 1,072,572,440- Operating Profit . 154,301,834 142,770,379 Other income . 669,131 671,868 154,970,965 143,442,247 Interest and related charges . 6,475,381 6,467,008 Other deductions from income 425,269 1,132,073 Total deductions 6,900,650 7,599,081 Operating income, before taxes on income 148,070,315 135,843,166 Federal and other taxes on income .. 79,573,891 72,523,561 Net Operating Income . . Provision for possible loss in 1960 (credit adjustment in 1961 for partial recovery) of leaf inventory in 68,496,424 63,319,605 Cuba, less applicable federal income tax ... 237,622 797,292 Net Income . 68,734,046 62,522,313 Retained earnings, beginning of year . 278,770,450 254,908,381 Cash Dividends: $2.80 per share; 1961 Common stock 347,504,496 317,430,694 , , 1960, $2.721h per share . . . . . . . 36,470,123 35,493,258 Preferred stock, $6 per share . . . . . . . 3,166,986 3,166,986 Tota I d ividends . . . . . . . . 39,637,109 38,660,244 Retained earnings, end of year . . . . . . . . $ 307,867,387 $ 278,770,450 Depreciation provided and charged to costs and expenses amounted to $5,682,559 in 1961 and $5,480,419 in 1960. 15 0 O, ~,

Cori.soli{.lafca Asseirs Deceuiber 31 1961 1960 Cash . . . . . . . . . . . . . . . . $ 18,257,482 $ 20,400,242 Accounts receivable, customers . . . . . . . . 60,720,896 56,576,888 Leaf tobacco, manufactured stock, operating supplies, etc., at average cost . . . . . . . . . . . 747,166,517 693,389,538 Miscellaneous accounts receivable . 1,757,383 1,451,845 Total current assets . 827,902,278 771,818,513 Investment in and advances to Cuban Tobacco Com- pany Inc., a majority-owned subsidiary, at amounts not in excess of cost (Note 1) . . . . . . . . 3,889,727 5,555,069 Insurance deposits and miscellaneous investments . 979,206 1,123,080 Land, buildings, machinery, etc., at cost, less accu- mulated depreciation, 1961, $62,805,560; 1960, $58,752,744 . . . . . . . . . . . . . 68,635,280 68,699,311 Prepaid expenses and deferred charges . 4,805,689 3,704,528 Brands, trade-marks, patents, good will, etc. . 1 1 $906,212,181 $850,900,502 16

C nC/-J/»u,?tcavi- c/o~iccc 7 AND WHDLLY•DWNED SUBSIDIARIES alcrnce Sheets Liabilities necembci• 31 1961 1960 Notes payable . . . . . . . . . . . . • $ 98,000,000 $ 78,000,000 Loans payable by British subsidiary . . . . . . . 15,830,723 8,665,417 Accrued taxes . . . . . . . . . . . . . 62,638,872 53,751,821 Accounts payable and accrued expenses . 27,986,877 24,064,492 Dividend on preferred stock for quarter ended December 31 . . . . . . . . . . . . . 791,746 791,746 Debentures to be redeemed within one year (Note 2) . 32,657,000 10,556,000 Total current liabilities . . . . . 237,905,218 175,829,476 Debentures (Note 2) . . . . . . . . . . . 99,879,000 135,740,000 337,784,218 311,569,476 Stockholders' Equity Capital stock (Note 3): Preferred, six per cent cumulative, par value $100 per sha re . . . . . . . . . . . . . 2,783,100 2,783,100 Common, par value $12.50 per share .. 162,813,050 162,813,050 Excess of net proceeds from capital stocks issued over par values . . . . . . . . . . . . . . 44,964,426 44,964,426 260,560,576 260,560,576 Retained earnings . . 307,867,387 278,770,450 Tota I . 568,427,963 539,331,026 $906,212,181 $850,900,502 1/ 'J

. . Notes .1c•rompunyi»y FlllCl)ic•iul Stclte»tc>>ifs I 2 The net tangible assets applicable to the investment in and advances to this unconsolidated domes- tic subsidiary at December 31, 19G1 and 1960, aamounted to $5,599,505 and $6,913,085, respectively. In 1960 this subsidiary provided for possible loss of its investments in two wholly-owned subsidi- aries which operated in Cuba and of its leaf inventory in Cuba, by charge to retained earnings. The amount of the net tangible assets at I)ecemher 31, ]t1G0, has been restated to reflect a partial recovery of leaf inventory in 1961 and federal income tax credits which became available in 1961 by reason of the 1960 provision. Interest received from this subsidiary was: 1961, $189,463; 1960, $207,270; the equity in earnings amounted to: 1961, i$351,763; 1960, $157,021. I)ebentures outstanding at I)ecember 31, 1961, comprise: Twenty year 3r'~, due April 15, 1962 ..... TwentY year 31:,' , due January 1, 1968 .. . . Twenty-five year 3<<, due October 15, 1969 ... Twenty-five year 3?/4 c,'(,, due Februarl' 1, 1977 . _ I'rin_cip_ a_l -4_n_io_unts _ Redeemable Redeemable Within After One Year Dec. 31, 1962 $$25,195,000 ~ - 3,000,000* 33,000,000 3,703,000* 33,764,000 759,000* 33,115,000 $32.G57,000 499.879,000 'Estimated principal amounts to bee redeemed through sinking fund operations at prires as provided by the indentures. 3 4 18 Capital stock at I)ec•ember 31, 1961, comprises: Chares Shares Authorized Issued Preferred . . . . . . . 540,106 527,831 Common . . . . . . . . 20,000,000 13,025,044 The stockholders Nvill be asked to vote at the 1962 annual meeting on a proposal to change each share of common stock of the par value of $12.50 per share into two shares of common stock of the par value of $6.25 per share. This would increase the common "Shares Authorized" to 40,000,000 and "Shares Issued" to 26,050,088. For information concerning the exchange in Januar}, 1962 of the capital stock of the Company's -wholly-owned subsidiary, J. Wia & Sons Limited, for a stock interest in Gallaher, Ltd., reference is made to The President's Letter in this report. lr F ~

. . . Supplementary Financial Infor»rafion Inrentories Leaf tobacco . . . . . . . . . . . . . . . . . Manufactured stock . . . . . . . . . . . . . . Supplies . . . . . . . . . . . . . . . . . . TOTAL . . . . . . . . . . . . . . . . . December 81 1961 $664,680,344 61,337,964 _ 21,148,209 $747,166,517 i 1960 $620,433,382 52,679,739 20,276,417 $693,389,538 Inventories used in the computation of cost of sales are priced at costs which result from the averaging monthly of transactions reflected in the inVentor~' accounts except that excise taxes in manufactured stock inventories are priced at actual cost. Land, Ijuilclinl;s, ltluchinery, etc. ~ GROSS ~ Dec A D ember 81, 1961 CCUMULATED EPRECIATION NET Land and buildings . . . . . . . . . . $ 55,560,453 $29,792,848 $25,767,605 Machinery and equipment . . . . . . . . 66,170,308 28,538,190 37,632,118 Oflice furniture and equipment ...... 3,576,025 2,329,464 1,246,561 Automobiles and trucks . . . . . . . . 4,431,518 2,145,058 2,286,460 Construction in process . . . . . . . . 1,702,536 1,702,536 TOTAL . . . . . . . . . . . . $131,440,840 $62,805,560 $68,635,280 19

Ilcport of Independent Ccriificd Public Accountants The Board of Directors avd Stockholders of Tlie flinorican ToLacco Compnny: We have examined the consolidated balance sheets of THE AMERICAN TOBACCO Cor1t'ANY as of December 31, 1961 and 1960 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 Nve 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 Com- pany and its -svholly-owned subsidiaries as of December 31, 1961 and 1960, and the consolidated results of their operations for the ~•ears then ended, in conformity Nrith generallN - accepted account- ing principles applied on a consistent basis. LYBRAND, 1'iOSS BROS. & 'MONTGOr1ERY New York, February 2, 1962. 9 20

... Directors Ea ecut ive Office 150 EAST 42ND STREET, NEW YORK 17, N. Y. Cot•porate. Office 117 MAIN STREET, FLEMINGTON, N. J. Transfer Aqe?it MORGAN GUARANTY TRUST COMPANY OF NEW YORK, NEW YORK 15, N. Y. Rt,uistrar FIRST NATIONAL CITY BANK, NEW YORK 15, N. Y. ORI'HEUS D. BAXALYS ALFRED F. BO\\'I)EN '1'HOiIAS 1'. CONNORS A. GORDON FIN1)LAY JOHN G. IIAGER, JR. VIRGIL D. HAGF.R I'AUL 111. HAHN HIRAM R. HANDiER IIARRY L. HILYARD A. LEROY JANSON FRRI)INANI) DIALI,GRAF JOHN 13. SI'ARRO\\' SILAS E. STRICKLAND GF,ORGE L. TURNER ROBERT B. WALKER GF,dRGE A. WILKINSON WILLIAM B. YOUNG Officel's PAUL AI. IIAHN, President ALFREI) F. BO\1'I)RN, 1'icc Presidcnt VIRGIL I). HAGER, Yice President HARRY L. HILTARD, Yice Pz•esident atrd Treasurer A. LEROY JANSON, Vice I'resident awl Coinptrollcr ROBERT B. A1'ALI:P:R, Vice President \V'ILLIADI I3. TOI"\G, Vice President \V"ALTF.I: A. KF.ANF.I)Y,Aiuditor ROBERT K. III:IAfANK, Assista7it to the Presidcnt JOHN W. IIAKLOI, Sccretary FI:EI)ER1CK \\-. ]~E ~\l', Assista~tt Scc:rctaaJ h:D\V'IN J. PIaOR, Assistant Azulitor GEORGE J. SCHRAM1i, Assistant Aaditor JOSEPH R. \\'A'1•F.RHOI'SF., As.Sistcntt T•casxrcr FRANCIS X. \\ HI:LA1~, Assista~it Trcasurcr 21

(/~it cf'i „it 2<C.Ct ~1 c ~~C•t~Cfir~C.l~~~l1)~!< AND ITS CONSOLIDATED SUBSIDIARIES 1E')I-FF" YEAR NET INCOME- - - - NET SALES INCOME BEFORE TAXES ON INCOME TAXES ON INCOME AMOU NT AVAILABLE PER COMMON SHARE 1961(1) $1,288,399 $148,565 $79,831 $68,7 34 $5.03 1960(1) 1,215,343 134,182 71,660 62,5 22 4.56 i ~ 1959(1) 1,161,377 136,071 72,823 63,2 48 4.61 1958(1) 1,105,176 124,994 66,138 58,8 56 4.28 1957(1) 1,098,093 118,605 61,510 57,0 95 4.14 1956(1) 1,091,206 111,352 59,663 51,6 89 3.73 1955 1,090,845 113,061 61,399 51,6 62 3.72 1954 1,068,579 91,056 48,005 43,0 51 3.06 1953 1,088,380 99,232 58,006 41,2 26 2.95 1952 1,065,738 78,352 44,283 34,0 69 2.39 DECEMBER 31 INVENTORIES CURRENT ASSETS WORKiNG CAPITAL PLANT AND EQUIPMENT (NET) 1961(1) $747,167 $827,902 $589,997 $68,635 1960(1) 693,390 771,819 595,989 68,699 1959(1) 656,680 728,028 587,624 67,776 1958(1) 648,311 717,268 574,089 64,895 1957(1) 671,381 740,483 569,345 58,154 1956(1) 655,116 724,423 566,581 52,216 1955 656,241 727,648 555,856 49,058 1954 632,143 703,086 550,454 47,189 1953 651,044 725,577 548,305 46,571 1952 640,753 712,654 551,255 44,480 NOTES: (1) Includes all wholly-owned subsidiaries. (2) Based on 13,025,044 shares for the years 1954 to 1961, inclusive; 12,908,220 shares for the years 195? and 1953. Shares for years prior to 1960 are after adjustrnent to reflect the two for one stocL; split in 1960. (3) Comprises notes payable, lo~ms payablee by British subsidiary and debentures redeemable within one year. 919 1-1 50037 ~6U"1

'~ "i"llcial Ii evic-w IN' THOI'SA1I1S (F.acept I'cr Share Amotuite) r-- -- -- COM AMOUNT DIVIDEND MON PER SHARE S- ( - - PREFERRED $6 PER SHARE) ADDED TO RETAINED EARNINGS SINKING FUND REOUIREMENTS YEAR $36,470 $2.80 $3,167 $29,097 $14,506 1961(1) 35,493 2.72112 3,167 23,862 14,151 1960(1) 32,563 2.50 3,167 27,518 13,800 1959(1) 32,563 2.50 3,167 23,126 13,468 195B(1) 32,563 2.50 3,167 21,365 13,144 1957(l) 32,563 2.50 3,167 15,959 12,839 1956(1) 28,655 2.20 3,167 19,840 12,532 1955 28,654 2.20 3,167 11,230 12,261 1954 25,816 2.00 3,162 12,248 11,989 1953 23,934 2.00 3,162 6,973 10,377 1952 r----- - - - - DEBT- - DECEMBER 31 TOTAL ASSETS LONG TERM SHORT TERM (3) NET WORTH BOOK VALUE PER COMMON SHARE $906,212 $ 99,879 $146,488 $568,428 $39.59 1961(1) 850,901 135,740 97,221 539,331 37.35 1960(1) 806,526 150,653 70,035 515,469 35.52 1959(1) 796,532 165,402 76,521 487,950 33.41 1958(1) 815,207 179,330 104,785 464,739 31.63 1957(1) 794,404 193,188 91,555 443,374 29.99 1956(1) 801,725 206,328 101,387 423,605 28.47 1955 775,364 218,967 91,575 403,765 26.95 1954 798,870 231,266 105,107 390,332 25.92 1953 783,154 243,570 102,950 377,074 25.13 1952 2 3

(/1t(' CNi~2C.?<L'-C[71 CX1If'C[C!Y'~t<')7I/)Q)7! ~ "(~)\!'!<CCX• Iti Ullt \I11)1)1.1: XA\1F: Your Co»>pany's Principal Products W711C11 11At:1: 1'(Il:lt I)I\'l1)EN1)S 1'OSSIItLE ..... (;iparE'Ifes Pall Mall --- "Outstanding ... and they are mild !" - the nation's King. I'ALL 11SAL1,'s famous lenyth of fine tobacco travels and gentles the smoke-makes it mild. Never too strong. Never too weak. Alnmys just ribht! And you can light either end! Lucky Strike - - A blend of the finest Turkish and domestic tohaccos. The I,ucxY S'rxtxE process "It's Toasted" enhances the taste of these fine tobaccos. A]cader among standard size brands Dual Filter Tareyton --"I)elivers the flavor- I)ual Filter does it." Combines a unique inner filter of Acth-ated Charcoal with a 1)ure mlite outer filter. It has been definitely proved that Activated Charcoal makes the taste of a cigarette mild and smooth Herbert Tareyton - Full king si•r.e . . . the nonfilier cit;ruyette MIth the tailored tip A fmvrite for 45 years because of its distinctive, mild taste C.igars Rol-Tan --America's largest selling cigar in the 10e price class. Also Itol-'I'AN Cigarilios and Trumps in the 5e class and Golfers in the 4( class. "Ro1-T.aN has more of eveQMing" than any cigar at its price Antonio y Cleopatra - - the mildest of the fine cigars La Corona* --- "Sul,reme the \1'orld Over" Bock y Ca' - the original 1)anetela, created in ]SR8 "`Interllational I;raluds," alnc,ng which are LA CokoNA, I:ocK t'CA .und IIENRT CLAI', are manufacttnVd ~ b}• a suLsidiar,v of the Colnlmuly. S»>uI; irrg TeAc•c•os Half and Half -the Comlgw's leading p1•anulated 1)lut; cut, Burley and Rright. In pouch-in-hox packing for douhle l,rotection, lollger-lasting freshness Blue Boar - American Tohacco's leader among high-grade pipe tobacco blends Genuine "Bull" Durham -- still far and amay the No. 1"roll-your-own" tobacco 2~ PRIN7ED IN U.S.A.

ANNUAL REPORT • 1961 (yo J{77ZC11 CC C~1- c/otifc ~~ C•'ri~/1 Ct rtty

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