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Cigarette and Tobacco Division Domestic Cigarettes In 1969, domestic cigarette consumption declined about 2 per cent from the 1968 level, chiefly as a result of the imposition of higher state and local cigarette taxes and the unprecedented anti-cigarette publicity. According to the United States Department of Agriculture, additional price increases, continuing adverse smoking and health publicity and slower economic growth could cause further industry declines. Many of the most eminent men of science and medicine have challenged the health charges against cigarette smoking. During Congressional hearings in the spring and summer of 1969, as in Congressional hearings in 1964 and 1965, the great preponderance of scientific testimony supported the industry's view that smoking has not been established as a cause of any disease. In addition, expert statisticians attacked the validity of the statistical foundation upon which the anti-tobacco charges are based. One member of the House Interstate and Foreign Commerce Committee stated: "Whom do we believe? Which way do we go? I wonder if we should not have an investigation of the investigators to try to find some facts of our own." Although these viewpoints have been given relatively little exposure before the general public, the serious doubts raised about conclusions drawn by anti-smoking forces indicate a greater need than ever for massive scientific research before the truth can be known. Hence, we will continue, as we have in the past, to give financial support to independent scientific research as the only proper and effective way to determine the truth with the hope that this will resolve the smoking and health controversy. Higher retail cigarette prices due to unreasonable and punitive state and local taxes continued to be a major industry problem in 1969. During the year, 20 tax bills were passed in 19 states, and the tax increases averaged approximately 45 per cent. North Caro- lina, which had never before levied a tax on cigarettes, became the 50th state to impose such a tax. This action could trigger further tax increases in other states. The total state and local revenues from cigarette excise taxes (about $2.4 billion) have increased to a level higher than that from Federal cigarette excise taxes, bringing the total direct cigarette revenues to approximately $4.4 billion. If there were no excise taxes on cigarettes, the consumer would pay about half as much as he now pays for his cigarettes. These tax figures do not include income and franchise taxes, state and local sales taxes and other direct and indirect taxes. Filter cigarettes increased their share of the total domestic market to approximately 77 per cent. The 100 millimeter sizes increased their share to about 16 per cent, and the menthol varieties to almost 21 per cent. For Liggett & Myers, total domestic unit sales were lower, although 100 millimeter unit sales followed the upward industry trend. TIMN 445986

Contents Highlights of Operations 1969 1968 Letter to Stockholders Cigarette and Tobacco Division 2 Domestic Cigarettes 2 International Cigarettes 3 Smoking and Chewing Tobaccos 4 The Pinkerton Tobacco Company 4 Alcoholic Beverages 6 The Paddington Corporation 6 Carillon Importers Ltd. 6 Austin, Nichols & Co., Incorporated 6 Pet Foods 8 Allen Products Company, Inc. 8 Net sales $658,784,013 $617,240,028 Ready Foods Corp. 8 Income taxes 32,231,789 29,493,343 National Oats Company 10 Brite Industries, Inc. 10 Net earnings 24,898,167 24,066,287 Products and Company Locations 13 Net earnings, including minority interest, as a Operating Income 14 Five Years in Review 14 percentage of net sales 3.91% 4.03% Net earnings applicable to common stock $ 22,480,319 $ 21,519,421 Financial Review 15 Financial Statements 16 Net earnings per share of common stock 2.92 2.82 Officers and Directors 24 Net earnings per share of common stock- assuming full dilution 2.87 2.78 Dividends per share of common stock 2.50 2.50 Current assets 348,891,187 343,319,057 Current liabilities 116,619,986 95,591,004 Ratio 3.0 to 1 3.6 to 1 Long-term debt $ 97,810,644 $ 84,018,998 Stockholders' equity 7% preferred stock 13,451,100 13,962,100 $5.25 convertible preference stock (involuntary liquidation value) 25,313,600 29,895,600 Common stock ~ 281,546,720 274,245,936 Per share of common stock ~ 36.51 35.96 Number of stockholders 51,510 49,965 Number of employees 8,730 8,265 Stockholders' Annual Meeting The annual meeting of stockholders will be held on Tuesday, April 28, 1970, at the Commodore Hotel, 42nd Street, between Lexington and Park Avenues, New York City, at 2:30 P.M. Eastern Daylight Time. A formal notice of this meeting, together with the proxy and proxy statement, will be mailed to stockholders on March 27, 1970. Stockholders who are unable to attend the meeting are urged to sign their proxies and return them promptly so that the stock of the Corporation will be represented as fully as possible at the meeting. TIMN 445984

Annual Report 1969 Fj CAMPAR Ll CREAM m OATS. ~yss CREAM ~N 't m ® r.ai'1'1:1i .. ® ® LM RED MAN 1RK IAIti~ "_ a m 9N kstin Ni . ~1RKEY ~ ~ MW ~~ FW' - Aa.pO' Liggettaers Mly Incorporated LIBRARY The Tr?;: ~.. , 1,'Etitute, IriO. TIMN 445983

LiggettaMyers To Our Stockholders: The record sales and higher earnings achieved by your company in 1969 were primarily due to the continuation of our aggressive diversification program which made excellent progress during the year. Net sales increased to $658,784,013, a gain of approximately 7 per cent over the $617,240,028 recorded in 1968. Net earnings increased to $24,898,167, equivalent to $2.92 per share of common stock, compared to $24,066,287, or $2.82 per share, in the previous year. As a result of our diversification program our non-tobacco business for the year increased to approximately 43 per cent of consolidated sales compared to 36 per cent for the previous year. Our improved performance reflects higher sales and earnings in the pet food and alcoholic beverage product groups, where the results were considerably better than the average in those industries. Other favorable factors were the inclusion for the first time of the results of Ready Foods Corp. which was acquired on January 29, 1969 and the inclusion for the first full year of Brite Industries, Inc. which was acquired September 30, 1968. Our latest acquisition, Liv-A-Snaps, Incorporated, a small producer of nationally distributed pet food treats, was completed on December 1, 1969. Pet foods and alcoholic beverages are growth industries that are expected to show good gains in the future. According to the Pet Food Institute, pet foods continued their impressive increases in 1969, with American consumers spending more than one billion dollars for pet foods, approximately three quarters of which was for dog foods. Domestic consumption of alcoholic beverages was almost 6 per cent higher in 1969, and an annual increase of from 5 to 6 per cent is anticipated, based on growth of the adult population. Our substantial tobacco business, both domestic and international, has provided the resources essential to rapid expansion into growth industries, so that we now have a higher percentage of our total business in non-tobacco products than has any other major cigarette manufacturer. A number of steps were taken during 1969 to strengthen our cigarette operations and to place us in a more cbmpetitive sales position both at home and abroad. A new Cigarette and Tobacco Division was formed, and Kenneth McAllister, an experienced management executive with excellent MILTON E. HARRINGTON achievement records at several large corporations, was named President of the new Division. To assist him in our expansion in the growing overseas markets, Curt K. Brill, a senior executive with a good background in international marketing of consumer products, was appointed President of the newly formed International Cigarette and Tobacco Division. We intend to expand our worldwide tobacco operations which we consider fundamental to our total corporate operations. We will also continue to explore suitable prospects for further diversification as such opportunities arise and may be deemed advantageous to the Corporation and in the best interest of its shareholders. Although there is uncertainty about the present economic outlook, our outlook for 1970 is good, and we feel confident that the long-term prospects for your company are excellent. Your Board of Directors and management join me in expressing their appreciation to the shareholders for their continued support of the company and its products and to the employees whose dedication and loyalty have contributed substantially to our growth and progress. Respectfully submitted, Milton E. Harrington President _ ~~:~~ March 5, 1970 TIMN 445985

Advertising for L&M, our leading cigarette brand, was changed at mid-year with a new campaign designed to build a contemporary image for L&M King, L&M Golden 100 and L&M Menthol 100. The new L&M advertising theme, "There is a cigarette for the two of you ... L&M," represents a new, fresh approach to cigarette advertising. CHESTERFIELD, our second largest- selling cigarette brand, leveled its long- term decline in the latter part of the year as a result of its unique coupon plan introduced during the year. Available on all packs of CHESTER- FIELD cigarettes (filters, menthol filters, 101 millimeter filters and king and regular non-filters), the new Luxury Merchandise Coupons are redeemable in more ways than any other coupons: for luxury merchandise, for cash (375 coupons equal $2.80), for redemption in combination with trading stamps (one coupon equals four stamps) and together with cash for "speed redemp- tion" for luxury merchandise. The exclusive features of LARK's Gas-Trap (TM) filter continued to be the focal point of advertising for our third largest-selling cigarette brand. LARK's new advertising theme, "Tell someone you like about LARK's Gas-Trap (TM) filter ... he may do something nice for you," appeared in full page, full color ads in leading consumer publications. LARK's 3-piece filter, protected by U.S. Patent No. 3,251,365, consists of two conventional outer filters and a separate inner chamber that contains activated, specially fortified charcoal granules. The activated charcoal granules trap certain harsh gases more effectively than do other popular brands. The two outer filters reduce "tar" and nicotine the same way conventional filters do. International Cigarettes Per capita consumption of cigarettes in foreign countries is still substantially below the rate in the United States, so that the greatest potential for additional cigarette sales is in these overseas markets. To meet the continuing worldwide demand for American-type cigarettes, Liggett & Myers exports its principal brands to more than 100 countries and holds equity positions in foreign cigarette manufacturing companies and main- tains licensing agreements for the production and distribution of Liggett & Myers brands in a number of foreign countries. The trend from non-filters to filters continues in international markets, and our principal filter brands, including their 100 millimeter versions, are gaining an increasing share of our export sales, although non-filter CHESTERFIELD is still a major export brand. Sales of our cigarette brands manufactured and marketed abroad in 1969 were substantially greater than in the previous year. Royalties from sales of our cigarette brands manufactured in foreign countries continue to make an important contribution to earnings. Steps were taken during the year to develop further our tobacco business in important world trading groups such as the European Free Trade Association (EFTA) countries. L&M Filter and CHESTERFIELD King, Regular and Filter, manufactured in Switzerland, were introduced in Sweden to take advantage of the lower tariffs that exist within the EFTA area. Within the EEC (European Economic Community) area, L&M and CHESTERFIELD cigarettes manufactured in West Germany are now distributed in France. Liggett & Myers brands are manufac- tured in Argentina, Australia, Austria, Belgium, Bolivia, Brazil, Costa Rica, Holland, Italy, Mexico, the Philippines, Switzerland and West Germany. In May, 1969, CHESTERFIELD Filter and Menthol were introduced in Argentina, where L&M Filter has shown recent rapid growth. TIMN 445987 3

Liggett & Myers has equity positions in cigarette manufacturing companies in Argentina, Brazil, Mexico, Peru, Switzerland and West Germany. In Brazil, Switzerland and West Germany, where we have majority equity positions, we incurred losses in 1969 from substantial reorganization and start-up costs. These expenditures should place us in a better growth position in these countries. Smoking and Chewing Tobaccos Although 1969 domestic consumption of smoking tobaccos declined about 3 per cent to 67.5 million pounds, Liggett & Myers'smoking tobacco sales increased during the year. Sales of our plug and twist chewing tobaccos followed the downward trend of the industry. In March, 1969, the Smoking and Chewing Tobacco Division, headquar- tered in St. Louis, introduced in test markets STERLING BLEND pipe tobacco, a mild, flavorful mixture of white burley and Virginia bright leaf tobaccos. Distribution was expanded to regional markets later in the year. In mid-1969, two new blends, Light Aromatic and Aromatic, developed as companions to MASTERPIECE regular, were introduced to meet pipe smokers' demand for a wide variety of flavors in premium smoking tobaccos. To ensure freshness of the pocket sizes of MASTERPIECE, a new cellophane overwrap was introduced. The large and medium sizes of GRANGER, VELVET and MASTERPIECE are now packed in the new Easy Open Vacuum Tin with a plastic lid to reseal freshness once the tin has been opened. This new packaging gives our principal pipe tobacco brands indefinite shelf life and assures freshness. Improved graphics on the new tins provide better identification and greater package appeal. Among various con- sumer promotions for GRANGER and VELVET were in-pack and pack-on pipe offers, a Barlow knife offer and special holiday packaging. The Pinkerton Tobacco Company Sales and earnings rose to record highs in 1969 for Pinkerton, a large loose-leaf chewing tobacco producer, wholly owned by Liggett & Myers. The company's principal brands, RED MAN, RED HORSE, PAY CAR and UNION STANDARD, are sold in modern foil pouches that give the products indefinite shelf life and assure freshness for the consumer. These pouches and their attractive package designs have won each of the brands greater consumer acceptance throughout the country and are a significant factor in the substantial sales gains. In the fall of 1969, a new warehouse was added to the Liggett & Myers Leaf Department facilities located in Indus- trial Park in Stoughton, Wisconsin, where tobaccos for the Pinkerton brands are processed. L&M, Chesterfield and Lark ... popular cigarettes throughout the world. 4 TIMN 445988

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Alcoholic Beverages The Paddington Corporation Sales and earnings by The Paddington Corporation, exclusive United States importer of J&B Rare Scotch Whisky, again set new records in 1969. These increases were achieved despite the fact that sales were adversely affected by excess buying in anticipation of the dock strike late in the previous year. During 1969, total domestic sales of Scotch whiskies registered substantial increases over sales in 1968, and according to an independent report published in a leading trade magazine, J&B not only maintained but improved its position as the country's largest-selling Scotch. Effective advertising and sales pro- motion programs for J&B throughout the year further enhanced the brand's popularity. Special promotions for Father's Day and the peak-demand, year-end holidays were particularly successful. A newly designed bottle in the half- gallon size was introduced, in states where its sale is legal,in time for the holiday season and was well received by both retailers and consumers. Carillon Importers Ltd. Because of the American public's growing interest in foreign cuisine and beverages, the principal import brands of Carillon Importers did especially well during 1969, and both sales and earnings rose to record levels. Sales of GRAND MARNIER, Carillon's leading brand, reached an all-time high, and demand continues to grow for this popular liqueur both as an after-dinner drink and as a key ingredient in grand cuisine. More consumers are being introduced to GRAND MARNIER through the successful cookbook created especially for the brand, "The Spirit of Grand' Cuisine," published by The Macmillan Company in 1969. CHERRY MARNIER, introduced several years ago, has met with good consumer acceptance, and the brand again had increased sales during the year. Another of Carillon's principal brands, BOMBAY English gin, registered substantial sales increases in 1969. Other Carillon products which had increased sales in 1969 include THE "ANTIQUARY" 12-Year-Old Scotch whisky, GOLD LEAF French Cognac, BOMBAY French Vermouth and BARDINET NAPOLEON French Brandy. Austin, Nichols & Co., Incorporated Austin, Nichols & Co., Incorporated, a leading importer, rectifier, bottler and distributor of alcoholic beverages, had record sales and earnings in 1969. WILD TURKEY, a company-owned, 101-proof, 8-year-old bourbon; METAXA, the imported Greek liqueur; and CAMPARI, the imported Italian aperitif, continued to show substantial growth in sales. GRANT'S 8-year-old, one of the more popular Scotch whiskies in the United States, is the company's principal imported brand. Austin, Nichols imports a unique brand of Scotch, GLENFIDDICH, also produced by Wm. Grant & Sons Ltd. Unblended Scotches like GLENFIDDICH are setting a new taste trend among connoisseurs of Scotch whisky in Scotland, England and on the Continent, where they are known as "single malt" Scotches. The company improved its position as the leading American importer of premium quality European wines, with sales of these products registering a gain of more than 40 per cent. Austin, Nichols has exclusive distribution rights in the United States for CHARLES HEIDSIECK French Champagne and CHAUVENET RED CAP sparkling and still Burgundy wines. The company also imports Chateau-bottled Bordeaux wines and Estate-bottled German wines from many of the world's finest vineyards. Austin, Nichols distributes alcoholic beverages in the New York City and Washington, D.C. metropolitan areas. The company's headquarters, rectifying and bottling plant, and Custom and Internal Revenue bonded warehouses are located in Maspeth, Long Island. TIMN 445990 J&B Rare ... the largest-selling Scotch whisky in Americ 6

iaatiUr•al Cats Company Earnings were higher in 1969 and sales were approximately the same as in 1968 for National Oats Compdny, a;-ducer of packaged cereals, pop corn wd animal and poultry feeds. In October, 1969, three "great new_ flavors" (Prune Apple, Maple Date and Cherry) were added to the INSTANT CREAM OF OATS line and are being introduced nationally on a market-by- market basis. To capitalize on the 3-MINUTE trademark franchise in the southeastern and southwestern states, 3-MINUTE STIR 'N EAT OATMEAL in three varieties (Maple Date, Apple Brown Sugar and unflavored) was introduced in those areas. Consumer reaction to the six new cereal products was favorable, and sales potential appears to be good. Instant cereals now comprise more than 30 per cent of the total hot cereal market, and oat cereal products are the leader in this category. The company has an aggressive marketing program for its CORNO line of animal and poultry feeds. CORNO products made substantial gains in 1969. The company extended its sales of oat products to the food industry. Its share of the ingredients market for ready-to- eat cereals and bakery and other food products was at a record high in 1969. Bulk pop corn sales to the commercial and concessionaire trades were higher. Significant progress was made in achieving greater operating efficiencies at the cereal and pop corn processing plants, These benefits have already been partially realized and will have a favor- able effect on operations in the future. 10 Brite Industries, Inc. Brite Industries' first full year as a Liggett & Myers subsidiary was marked by record sales and earnings. Brite continues to be the nation's leading manufacturer of popular-priced watch bands. During 1969, watch bands moved into the world of high fashion, and this created consumer demand for wide fashion watch straps in leathers and fabrics. As a result, Brite placed heavy emphasis on styling and new product development and promoted the concept of "watch strap wardrobes" for the fashion-conscious youth market. As one major part of this fashion- oriented marketing program, Brite obtained the exclusive license to pro- duce watch straps under the "HUSH PUPPIESI~" label, and successfully launched a complete line of watch straps under this nationally advertised brand name. To meet the increasing demand.for watch straps, a new manufacturing plant was opened in St. Petersburg, Florida in July, 1969. The new plant immediately doubled the company's production capacity and is believed to be the largest installation in the world devoted exclusively to the manufacture of leather watch straps. The original plant in Providence, Rhode Island man- ufactures a full line of leather, nylon and metal watch bands. During the year, separate sales divisions were organized in order to enter new channels of distribution and to expand Brite's present distribution. Growth in sales to discount houses was especially notable, as the company's ROGER WILLIAMS product line increased its share of this high volume market at a higher rate than in any previous year. Further development of Brite's unique in-store sales program and the addition of several new product lines contributed to the higher sales volume. Brite's "self-service watch band departments" have a built-in automatic inventory control system and contain a product variety that is the most diverse in the industry. Instant Cream of Oats with great new flavors. TIMN 445994

Operating Income Non-Tobacco . Tobacco $44,845,965 $40,320,830 $53,973,877 $37,322,893 1966 $38,347,416 $61,356,521 $36,284,105 Operating income represents income before corporate ex- penses, interest, other income and expenses, income taxes and minority interest. The results of operations of companies acquired by pur- chase during the period are in- cluded from dates of acquisi- tion; companies acquired on a pooling of interests basis are included for the entire period. 1965 Five Years in Review (Dollars expressed in thousands except per share figures) 1967 $64,007,927 1968 $69,605,774 $32,749,413 1969 1969 1968 1967 1966 1965 Operating Results - Year Ended December 31 Net sales . $658,784 $617,240 $631,780 $635,258 $533,153 Excise taxes included in sales 170,118 178,992 205,952 215,971 204,735 Operating income 69,606 64,008 61,357 53,974 44,846 Income taxes 32,232 29,493 27,352 25,158 20,501 Net earnings 24,898 24,066 25,127 23,439 22,597 Net earnings per share of common stock 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 Financial Position - Year End Inventories 259,292 258,640 274,992 293,034 278,637 Working capital 232,271 247,728 250,303 270,345 265,455 Plant and equipment (net) 56,915 48,224 42,773 40,263 35,170 Total assets 544,644 507,385 490,382 490,506 382,764 Long-term debt 97,811 84,019 75,636 73,322 564 Short-term debt 66,135 51,712 51,292 41,643 40,526 Stockholders' equity 320,311 318,104 315,334 313,177 311,448 Book value per share of common stock 36.51 35.96 35.45 34.91 34.58 14 TIMN 445998