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Six Years in Review (Dollars expressed in thousands except per share figures) Operating Results - Year Ended December 31 1970 1969 1968 1967 1966 1965 Net sales • • • • • • • • .......................... $696,664 $658,784 $617,240 $631,780 $635,258 $533,153 Excise taxes included in sales .................. 166,775 170,118 178,992 205,952 215,971 204,735 Operating income ..•.•••••••••••••••••••••-• 83,418 69,606 64,008 61,357 53,974 44,846 Earnings before extraordinary charge ............ 32,039 24,898 24,066 25,127 23,439 22,597 Net earnings ............................... 28,844 24,898 24,066 25,127 23,439 22,597 Amounts per common share Earnings before extraordinary charge .......... 3.86 2.92 2.82 2.93 2.71 2.56 Net earnings ............................. 3.45 2.92 2.82 2.93 2.71 2.56 Dividends on common stock - per share ......... 2.50 2.50 2.50 2.50 2.50 2.50 Financial Position - Year End Working capital ............................. 215,700 232,271 247,728 250,303 270,345 265,455 Plant and equipment (net) .................... 62,904 56,915 48,224 42,773 40,263 35,170 Total assets ................................ 549,141 544,644 507,385 490,382 490,506 382,764 Long-term debt ............................. 84,141 97,811 84,019 75,636 73,322 564 Short-term debt ............................ 71,182 66,135 51,712 51,292 41,643 40,526 Stockholders' equity ......................... 325,417 320,311 318,104 315,334 313,177 311,448 Book value per share of common stock ........... 37.63 36.51 35.96 35.45 34.91 34.58 Disposition of Total Revenues for 1970 The company and its subsidiaries received for goods sold to custo- mers and from royalties, etc., a total of $698,744,000. This is how it was used or set aside. 46.2% Cost of goods sold, exclusive of excise taxes $322,971,000 1.0% Earnings retained $7,318,000 3.1% Dividends $21,526,000 5.3% Income taxes $37,358,000 18.0% Other operating costs and expenses $125,580,000 2.5% Non-operating expenses, minority interest and extraordinary charge (net) $17,216,000 23.9% Excise taxes $166,775,000 TIMN 445971 14

. Liggett & Myers Incorporated 630 Fifth Avenue, New York, N.Y. 10020 TIMN 4459~2

Consolidated 8alance Sheet As of December 31 Assets 1970 1969 Current Assets Cash ......................................................... $ 16,715,937 $ 13,626,359 Marketable securities - at cost which approximates quoted market value .... 4,337 10,210,566 Accounts receivable Customers (less allowances for discounts and doubtful accounts: 1970, $899,544; 1969, $696,179) ................................... 66,304,357 61,440,289 Others ..................................................... 3,679,846 4,321,621 Inventories - principally at average cost (Note 2) Leaf tobacco ................................................ 187,900,048 188,547,952 Bulk whiskeys ............................................... 13,543,676 a 10,203,884 Finished goods and work in process ............................... 35,422,508 I 40,945,249 Other materials and supplies ..................................... 19,470,322 19,595,267 Total current assets ...................................... 343,041,031 348,891,187 Investments Capital stocks of and advances to foreign companies Unconsolidated subsidiaries (Note 1) .............................. 7,647,224 9,002,542 Other companies - at cost ...................................... 10,092,132 11,892,877 Other - at cost ................................................. 1,285,820 1,241,944 Total investments ....................................... 19,025,176 22,137,363 Property, Plant, and Equipment - at cost (Note 3) Land ......................................................... 5,542,702 4,468,773 Buildings ..................................................... 38,249,675 36,209,824 Machinery and equipment, etc . .................................... 81,414,782 86,959,723 Total ................................................ 125,207,159 127,638,320 Less accumulated depreciation ............................. 62,303,267 70,723,663 Property, plant, and equipment - net ....................... 62,903,892 56,914,657 Franchises, Goodwill, Brands, and Trademarks - at cost, less amortization (Note 1) .................................. 118,784,111 110,832,155 Deferred Charges and Prepaid Expenses ........................... 5,387,008 5,868,617 Total ................................................ $549,141,218 $544,643,979 .See Notes to Financial Statements. TIMN 445973 ~ 16

LIGGETT & MYERS INCORPORATED AND CONSOLIDATED SUBSIDIARIES Statement of Consolidated Paid-In Capital In Excess of Par Values of Capital Stock For the Years Ended December 31 Balance, January 1 ................................................ Add (Deduct) Excess of par value of shares (194,952 in 1970 and 105,954 in 1969) of common stock issued and cash paid in lieu of issuing fractional shares of common stock over the par value of shares (84,834 in 1970 and 46,112 in 1969) of $5.25 preference stock converted into common stock (Note 6) ... Excess of sales price over par value of capital stock sold to officers and employees under the Company's stock option plans (Note 7) ........... Excess of par value over cost of 7% preferred stock acquired .............. Excess of cost over related average quoted market value of 27,522 and 23,012 shares of common treasury stock issued in 1970 and 1969, respectively, in payment of awards for the 1969 and 1968 Plan years under incentive compensation plans for employees (Notes 6 and 8) ................... Other ........................................................ Balance, December 31 ............................................. See Notes to Financial Statements. 1970 1969 $117,746,183 $117,711,703 (113,106) (62,043) 36,700 23,177 122,870 12,951 (47,668) 84,951 1,711 (24,556) $117,746,690 $117,746,183 Statement of Consolidated Retained Earnings For the Years Ended December 31 Balance, January 1 ................................................ Add (Deduct) Net earnings ................................................... Cash dividends Preferred stock - $7 per share ................................... Preference stock - $5.25 per share ............................... Common stock - $2.50 per share ................................ Balance, December 31 (Note 5) ...................................... See Notes to Financial Statements. 1970 1969 $192,908,804 $189,678,988 28,843,913 24,898,167 (864,052) (967,530) (1,195,565) (1,450,318) (19,465,983) (19,250,503) $200,227,117 $192,908,804 TIMN 445976 19

Alcoholic Beverages The Paddington Corporation Sales and operating income of The Paddington Corporation, exclusive United States importer of J&B Rare SL 1) tIJh Whisky, rose to record highs in P-170. The rate of gain of alcoholic beverage sales slowed considerably in 1970, and the increase in the domestic consumption of spirits was only a fraction of its annual gains in recent years. Sales of Liggett & Myers' alcoholic beverages, however, increased several times the industry average. While sales of domestic whiskies de- clined last year, imported whiskies had substantial gains, with Scotch whisky showing the greatest increase of any major category. Our principal brand, J&B, shared in these gains, and according to independent trade reports, J&B was again the country's best-selling Scotch and moved up to sixth place among all liquor brands of all types. Despite the economic slowdown, premium liquor items, including Scotches, posted gains last year, and to participate in this growth sector of the industry, we introduced into major markets ROYAL AGES, a 15-year-old premium-priced Scotch, from the vener- able house of Justerini & Brooks. We strengthened our Paddington marketing team last year with the addi- tion of two principal executives with extensive experience in the alcoholic beverage industry. Austin, Nichols & Co., Incorporated The principal brands of Austin, N ichols & Co. had substantial sales increases in 1970, particularly the company's leading brand, WI LD TUR KEY, a 101-proof, 8-year-old bourbon. While industry bourbon sales declined last year, the premium brands improved their positions, and the gains made by WI LD TURKEY were considerably greater than the increase achieved by premium-priced bourbons as a group. With the possibility of broadening the consumer appeal, and hence the market, for the prestigious W I LD TU R KEY brand, we began test marketing a new 86.8 proof version, which also sells at premium prices, in several markets in the last quarter of 1970. 6 Reflecting the continued diversity in the consumption of alcoholic beverages in this country, the sales of brandies, - cordials, cognacsand other specialties increased at a rate greater than the rate for total spirits last year, and the leading Austin, N ichols imported brands did con- siderably better than these categories, especially METAXA, the Greek liqueur, and CAMPARI, the Italian aperitif. Wine consumption in the United States continued to grow in 1970, and sales of imported wines, now more than 11 per cent of the total, increased at a rate about twice as great as that for domestic wines. Austin, Nichols, as a leading importer of premium quality European wines, improved its position in this area with a sales increase of approxi- mately 28 per cent last year. The com- pany has exclusive distribution rights in the United States for CHAUVENET RED CAP sparkling and still wines and CHARLES HEIDSIECK French Cham- pagne and has taken a leadership position in the distribution of fine Chateau and Estate-Bottled wines from the great vineyards of Bordeaux, Burgundy, The Rhine and Moselle. Carillon Importers Ltd. Carillon I mporters again had record sales and operating income in 1970. Carillon's sales growth exceeded that of brandies, cognacs, liqueurs and other specialty cate- gories, which in turn exceeded the growth of the spirits industry as a whole. The prestigious GRAND MARNIER, Carillon's leading brand, made substantial sales gains. The GRAND MARNIER drink recipe and haute cuisine demon- stration program conducted in leading department stores throughout the country, GRAND MARNIER recipe booklets and "The Spirit of Grand' Cuisine," published by The Macmillan Company, continued to introduce the brand to many thousands of new custo- mers. CHERRY MARNIER also had a good sales increase in 1970. Despite the lack of significant growth in gin consumption last year, Carillon's imported English brand, BOMBAY, had considerably higher sales again in 1970. I mpressive sales increases were also made by other major Carillon imported brands, including GOLD LEAF French Cognac, ACHAIA CLAUSS Greek wines and aperitifs, BARDINET NAPOLEON French Brandy and BOMBAY French Vermouth. Last year, Carillon became the exclu- sive American importer for the widely known CALVET French wines from Burgundy and Bordeaux. CALVET is the largest producer and shipper of wines in F rance. During the year, Carillon further broadened its product line with a new Kentucky straight bourbon whiskey named W. C. FIELDS,which was offered in a ceramic bust of the comedian. Dis- _ tributed in limited quantities as a collec-_ tor's item, it was highly successful and established an important new brand name for the company.

Financial Review'1970 Sales Net sales in 1970 increased 6 per cent to an all-time high of $696,663,577, com- pared with $658,784,013 in 1969. Sales of non-tobacco products in 1970 amounted to approximately 45 per cent of con- solidated net sales. If excise taxes on tobacco and alcoholic beverage products were excluded from the reported sales figures, the percentage of sales of non- tobacco products in 1970 would be approximately 53 per cent. Cigarette and tobacco sales increased 1 per cent from $378,067,317 in 1969 to $383,471,179 in 1970; sales of non- tobacco product lines increased 12 per cent from $280,716,696 to $313,192,398. Sales of alcoholic beverages increased 5 per cent from $140,080,190 to $146,767,267; sales of pet foods increased 18 per cent from $110,191,539 to $129,642,286; and sales of other non-tobacco product lines in- creased 21 per cent from $30,444,967 to $36,782,845. Earnings Consolidated net earnings for 1970 were $28,843,913 ($3.45 per share of common stock), compared with $24,898,167 for 1969 ($2.92 per share). In 1970, earnings before an extraordinary charge of $3,195,000 ($.41 per share) were $32,038,913 ($3.86 per share). Net earn- ings for 1970 were 16 per cent higher than for 1969; earnings before-the extraordinary charge were 29 per cent higher than 1969 net earnings. The extraordinary charge of $3,195,000 represents the estimated costs of $6,684,000 for the closing of the cigarette manufacturing plant in Richmond, Virginia, less related income tax benefits of $3,489,000. Concurrent with the closing of the Richmond plant, the company has undertaken the modernization and ex- pansion of its primary plant facilities in Durham, North Carolina. These changes are expected to increase manufacturing effi- ciencies and result in savings beginning in 1971. Operating Income Operating income (income before cor- porate expenses; interest, other income and expenses, income taxes, minority interest, and the extraordinary charge) applicable to non-tobacco products amounted to approximately 52 per cent of consolidated operating income in 1970. Operating income generated from ciga- rette and tobacco products increased 21 per cent from $32,749,413 in 1969 to $39,738,284 in 1970; operating income from non-tobacco product lines increased 19 per cent from $36,856,361 to $43,679,882. Operating income from alcoholic beverages increased 6 per cent from $24,756,451 to $26,148,604; oper- ating income from pet foods increased 49 per cent from $9,149,825 to $13,616,974; operating income from other non-tobacco product lines increased 33 per cent from $2,950,085 to $3,914,304. Dividend Record Common stock dividends have been paid each year since the Corporation was organized in 1911. Common stock divi- dends in 1970 amounted to $2.50 per share. Dividends of $7.00 and $5.25 per share were paid on the 7 per cent preferred stock and the $5.25 preference stock, respectively. There were 50,11 1 stock- holders at the end of 1970. Taxes I ncome taxes amounted to $33,869,000 in 1970 ($37,358,000 as shown in the accompanying statement of consolidated earnings, less $3,489,000 income tax bene- fits included in the extraordinary charge). This amounts to $4.36 per share of common stock, compared with net earnings of $3.45 per share of common stock. The Federal income tax surcharge was reduced from 10 per cent for 1969 to an effective rate of 2'h per cent for 1970 and has been discontinued for 1971. The sur- charge reduced per share earnings by $.10 in 1970 and by $.34 in 1969. Capital Expenditures Capital expenditures during 1970 con- sisted mainly of disbursements for expan- sion and modernization of the Corpora- tion's cigarette manufacturing facilities in Durham, North Carolina and for plant expansion and improvement of the manu- facturing facilities of Allen Products Company, I nc., Perk Foods Co. and National Oats Company. These expendi- tures totaled $10,800,000 in 1970, compared to $7,800,000 in 1969. Depreciation charges in 1970 aggre- gated $5,336,255, compared to $6,724,516 in 1969. The reduction in depreciation charges is due principally to a change in the method of computing depre- ciation, as explained in Note 3 to the ac- companying financial statements. Financial Condition The sound financial condition of the Corporation is indicated by the 2.7 to 1 ratio of current assets to current liabilities and by the fact that long-term debt is only 20.5 per cent of total capitalization. The Corporation acquired 55,900 shares of its common stock during 1970 at an average cost of $34.64 per share, bring- ing the total number of common shares held in treasury to 349,068. The Corpora- tion also acquired 14,610 shares of its 7 per cent preferred stock during 1970 at an average cost of $91.59 per share. TIMN 445972 15

LIGGETT & MYERS INCORPORATED AND CONSOLIDATED SUBSIDIARIES Liabilities Current Liabilities 1970 1969 Notespayable......••••••.••.•-••••••••••••••••••-•••••-••••.•• $ 70,752,805 $ 65,961,614 Accounts payable ............................................... 19,539,102 14,989,998 Dividends payable .............................................. 210,509 235,394 Taxes payable and accrued ........................................ 16,388,874 20,142,117 Portion of long-term debt due within one year ......................... 429,134 172,960 Estimated costs relating to closing of Richmond plant (Note 4) ............ 3,430,841 - Other accrued liabilities .......................................... 16,590,090 15,117,903 Total current liabilities ................................... 127,341,355 116,619,986 Long-Term Debt 6% sinking fund debentures, due 1992 ($3,000,000 to be redeemed annually from 1973 to 1991) ........................................... 72,000,000 75,000,000 Other (Note 5) ................................................. 12,140,672 22,810,644 Total long-term debt .................................... 84,140,672 97,810,644 Other Long-Term Liabilities (Note 4) .................................. 4,425,301 1,877,765 Minority Interest in Consolidated Subsidiaries ........................... 7,817,009 8,024,164 Stockholders' Equity Capital stock (Notes 6, 7, and 8) 7% cumulative preferred stock, par value $100 per share - authorized, 139,621 shares; issued, 139,621 shares; in treasury, 1970, 19,720 shares, 1969, 5,110 shares .......................................... 1,990,100 3,451,100 $5.25 cumulative convertible preference stock, par value $1 per share - authorized, 310,000 shares; issued, 1970, 169,246 shares, 1969, 253,136 shares (involuntary liquidation value, 1970, $16,924,600, 1969, $25,313,600) .............................................. 69,246 53,136 Series preference stock, par value $1 per share - authorized, 1,000,000 shares; issued, none ......................................... Common stock, par value $1 per share - authorized, 12,000,000 shares; issued, 1970, 8,228,172 shares, 1969, 8,033,220 shares .............. Paid-in capital in excess of par values of capital stock ................... Retained earnings (Note 5) ........................................ Total ................................................ Less cost of common stock in treasury (1970, 349,068 shares; 1969, 321,756 shares) ......................................... Total stockholders' equity ................................ Total ................................................ See Notes to Financial Statements. - - 8,228,172 8,033,220 117,746,690 117,746,183 200,227,117 192,908,804 338,361,325 332,392,443 12,944,444 12,081,023 325,416,881 320,311,420 $549,141,218 $544,643,979 TIMN 445974 17

National Oats Company National Oats Company, a producer of breakfast cereals, popcorn an l,1nimal and poultry feeds, increased its sales arid operating income in 1970. A new marketing team was organized in 1970 under a new experienced market- ing director, and improvements were made in marketing strategies, financial controls, manufacturing techniques, and also in research and development activ- ities, in order to improve present product lines and develop new, related products. Our breakfast cereal sales declined slightly in 1970 in line with industry sales of hot cereals. Despite the general trend to convenience foods, the instant hot cereal products introduced in recent years, including our own brands, have not reached the potentials anticipated. Exaggerated publicity to the contrary, breakfast cereal products generally, in- cluding our brands, are not low in nutri- tional values and do not represent "empty calories." Sales of oat products to some seg- ments of the food industry increased last year, but the gains were more than offset by reductions in sales to ready-to-eat cereal manufacturers. Our consumer popcorn sales and our bulk popcorn sales to the commercial and concessionaire trades were higher in 1970. The present short supply situation due to the adverse corn crop conditions last year is expected to benefit us in 1971 because of our favorable inventory position. The Corno Feed Products Division of National Oats had record sales and oper- ating income in 1970, with substantial gains achieved by the aggressive market- ing program of the CORNO animal and poultry feed product lines. Construction was begun in 1970 on two new feed mills, which will be in oper- ation early in 1971. Strategically focated in Flora, I Ilinois and Montgomery City, Missouri to expand the marketing areas, the new olants will rin, hia tha Division's manufacturing capacity and enhance its competitive position. 10

Statement of Consolidated Source and Application of Funds For the Years Ended December 31 Source of Funds From operations Earnings before extraordinary charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Minority interest in earnings of consolidated subsidiaries ............... Depreciation and amortization ................................... Equity in net losses of unconsolidated foreign subsidiaries .............. Total ................................................ Extraordinary charge ............................................ Decrease in working capital ....................................... Increase in long-term debt ........................................ Increase in other long-term liabilities ................................ Decrease in other investments ..................................... Related average quoted market value of 27,522 and 23,012 common shares issued in 1970 and 1969, respectively, in payment of awards for the 1969 and 1968 Plan years under incentive compensation plans for employees ... Decrease in deferred charges and prepaid expenses ...................... Proceeds from exercise of the Company's stock options ................. Other ........................................................ Total ................................................ Application of Funds Cash dividends ................................................. Additions to franchises and goodwill ................................ Decrease in long-term debt ........................................ Purchase of property, plant, and equipment, less retirements: 1970, $1,314,278; 1969, $655,940 ................................... Cost of common and preferred stock purchased ........................ Investments in and advances to unconsolidated foreign subsidiaries ......... Reductions in minority interest due to changes in capital and payment of dividends to minority stockholders .................... . .......... Increase in other investments ...................................... Other ........................................................ Total ................................................ See Notes to Financial Statements. 1970 1969 $32,038,913 $24,898,167 994,086 835,285 9,077,228 10,465,215 2,357,000 1,256,000 44,467,227 37,454,667 (3,195,000) - 16,571,525 15,456,852 645,000 14,025,355 2,547,536 - 1,756,869 - 985,479 960,032 481,609 - 37,643 23,765 41,240 - $64,339,128 $67,920,671 $21,525,600 $21,668,351 11,692,929 22,698,959 14,314,972 233,709 11,325,490 15,414,923 3,274,227 1,978,776 1,001,682 3,522,601 1,201,241 534,038 - 1,312,608 2,987 556,706 $64,339,128 $67,920,671 TIMN 445977 20

Liggettb Myers Officers *MILTON E. HARRINGTON President and Chief Executive Officer *J. BOWLING ANDERSON Executive Vice President *KENNETH McALLISTER Executive Vice President *JONATHAN W. OLD, JR. Executive Vice President CURT K. BRI LL Vice President *FREDERICK P. HAAS Vice President and General Counsel R. HAYWOOD HOSEA Vice President and Comptroller JAMES G. HUCKABEE, JR. Vice President RALPH P. MOORE Vice President JAMES J. MORAN Vice President *SAMUEL WHITE Corporate Vice President ERNEST W. BALDASSARE Treasurer CHARLES B. MORGENTHALER Secretary and Associate General Counsel THOMAS M. GAFFEY, JR. Assistant Comptroller RUSSELL G. CUTTER Auditor JOSEPH R. SACCA Assistant Treasurer RICHARD H. GOODWIN Assistant Treasurer DONALD G. NYREEN Assistant Treasurer and Assistant Secretary JOHN W. MILES, JR. Internal Auditor JOSEPH H. GREER Assistant Secretary M. JOAN MURTHUM Assistant Secretary JOSEPH F. TAYLOR Assistant Secretary *Executive Committee; Chairman: Jonathan W. Old, Jr. Directors J. BOWLING ANDERSON WILLIAM W. BATES,JR. CURT K. BRILL S. BACON FULLER FREDERICK P. HAAS MILTON E. HARRINGTON JAMES G. HUCKABEE, JR. KENNETH McALLISTER HOWARD W. McCALL, JR. RALPH P. MOORE RAYMOND J. MULLIGAN JONATHAN W. OLD, JR. ABRAHAM ROSENBERG FREDERICK SHEFFIELD ROBERT L. TAYLOR OGDEN WHITE SAMUEL WHITE Executive Changes On May 1, 1970, Edward J. Parrish, Vice President and Director, retired in accord- ancewith the Company's Retirement Plan. On April 29, 1970, R. Haywood Hosea and James J. Moran were elected Vice President; Ernest W. Baldassare was elected Treasurer; Richard H. Goodwin was elected Assistant Treasurer; and Joseph H. Greer was elected Assistant Secretary. On August 18, 1970, Joseph R. Sacca was elected Assistant Treasurer and Comptroller, Subsidiary Operations; Donald G. Nyreen was elected Assistant Treasurer and continued as Assistant Secretary; and John W. Miles, Jr. was elected Internal Auditor. Transfer Agent: Chemical Bank 20 Pine Street, New York, N. Y. 10015 Registrar: First National City Bank 111 Wall Street, New York, N. Y. 10015 i 24 TIMN 445981 Printed in U.S.A.