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Consolidated Balance Sheet As of December 31 Assets Current Assets 1969 1968 Cash (including, for 1968, negotiable time certificates of deposit: $13,440,000) $ 13,626,359 $ 26,017,718 Marketable securities-at cost which approximates quoted market value 10,210,566 1,403,287 Accounts receivable Customers (less allowances for discounts and doubtful accounts: 1969, $696,179; 1968, $607,372) 61,440,289 53,798,404 Others 4,321,621 3,459,435 Inventories-principally at average cost (Note 2) Leaftobacco 188,547,952 200,608,127 Bulk whiskeys 10,203,884 6,934,324 Finished goods and work in process 40,945,249 34,124,010 Other materials and supplies 19,595,267 16,973,752 Total current assets 348,891,187 343,319,057 Investments Capital stocks of and advances to foreign companies Unconsolidated subsidiaries (Note 1) 9,002,542 6,735,941 Other companies-at cost 11,892,877 10,650,905 Other-at cost 1,241,944 1,171,308 Total investments 22,137,363 18,558,154 Property, Plant, and Equipment-at cost (Note 3) Land 4,468,773 3,806,879 Buildings 36,209,824 32,394,789 Machinery and equipment 86,959,723 83,962,147 Total 127,638,320 120,163,815 Less accumulated depreciation 70,723,663 71,939,565 Property, plant, and equipment-net 56,914,657 48,224,250 Franchises, Goodwill, Brands, and Trademarks- at cost, less amortization (Note 1) 110,832,155 91,873,895 Prepaid Expenses and Deferred Charges 5,868,617 5,409,867 Total $544,643,979 $507,385,223 TIMN 446000 16 See Notes to Financial Statements.

Financial Review 1969 Sales and Earnings Consolidated net earnings for 1969 were $24,898,167 ($2.92 per share of common stock), compared to $24,066,287 for 1968 ($2.82 per share). Net sales in 1969 by the Corporation and its subsidiaries were $658,784,013, compared with $617,240,028 in 1968. Sales of non-tobacco products in 1969 amounted to approximately 43 per cent of consolidated 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 1969 would be approximately 51 per cent. Operating Income Operating income (income before corporate expenses, interest, other income and expenses, income taxes, and minority interest) applicable to non-tobacco products amounted to approximately 53 per cent of consolidated operating income in 1969. The chart on the opposite page indicates graphically the contribution to operating income of tobacco and non-tobacco products for each of the past five years. Although there has been a moderate decline in the operating income of tobacco products, such income has provided the resources that made possible the growth in operating income of non-tobacco products. In 1969, tobacco products contributed approximately 47 per cent of such consolidated operating income. This compares favorably with tobacco products' 49 per cent contribution to consolidated net sales, exclusive of excise taxes. LIGGETT & MYERS INCORPORATED AND CONSOLIDATED SUBSIDIARIES Dividend Record Common stock dividends have been paid each year since the Corporation was organized in 1911. Common stock dividends in 1969 amounted to $2.50 per share. Dividends of $7.00 and $5.25 were paid on the 7 per cent preferred stock and the $5.25 convertible preference stock, respectively. There were 51,510 stockholders at the end of the year. Taxes Income taxes amounted to $32,231,789 in 1969, equal to $4.19 per share of common stock. This compares with net earnings of $2.92 per share of common stock. The 10 per cent Federal income tax surcharge enacted in 1968 reduced earnings by $.34 per share in 1969 and $.31 per share in 1968. For 1970, the effective rate of the surcharge has been reduced from 10 to 2'/z per cent. Capital Expenditures Capital expenditures during 1969 consisted of disbursements for plant expansion and improvement of the manufacturing facilities of Allen Products Company, Inc. and Ready Foods Corp. and for new machinery and equipment for the Cigarette and Tobacco and other divisions of the Corporation. These expenditures totaled $7,800,000, compared to $8,300,000 in 1968. Depreciation charges in 1969 aggregated $6,724,516, compared to $5,630,675 in 1968. Financial Condition The sound financial condition of the Corporation is indicated by the 3 to 1 ratio of current assets to current liabilities and by the fact that long-term debt is 23.4 per cent of total capitalization. The Corporation acquired 43,000 shares of its common stock during 1969 at an average cost of $34.44 per share, bringing the total number of common shares held in treasury to 321,756. The Corporation also acquired 5,110 shares of its 7 per cent preferred stock during 1969 at an average cost of $97.47 per share. TIMN 445999 15

LIGGETT & MYERS INCORPORATED AND CONSOLIDATED SUBSIDIARIES Liabilities Current Liabiliti es 1969 1968 Notes payable $ 65,961,614 $ 51,647,107 Accounts payable 14,989,998 14,043,112 Dividends payable 235,394 244,337 Taxes payable and accrued 20,142,117 19,673,836 Portion of long-term debt due within one year 172,960 65,102 Other accrued liabilities 15,117,903 9,917,510 Total current liabilities 116,619,986 95,591,004 Long-Term Debt 6% sinking fund debentures, due 1992 ($3,000,000 to be redeemed annually from 1972 to 1991) 75,000,000 75,000,000 Other (Note 7) 22,810,644 9,018,998 Total long-term debt 97,810,644 84,018,998 Deferred Compensation 1,877,765 1,948,668 Minority Interest in Consolidated Subsidiaries 8,024,164 7,722,917 Stockholders' Equity Capital stock (Notes 4, 5, and 6) 7% cumulative preferred stock, par value $100 per share-authorized, 139,621 shares; issued, 139,621 shares; in treasury, 1969, 5,110 shares 13,451,100 13,962,100 $5.25 cumulative convertible preference stock, par value $1 per share- authorized, 310,000 shares; issued, 1969, 253,136 shares, 1968, 298,956 shares (involuntary liquidation value, 1969, $25,313,600, 1968, $29,895,600) 253,136 298,956 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, 1969, 8,033,220 shares, 1968, 7,927,266 shares 8,033,220 7,927,266 Paid-in capital in excess of par values of capital stock 117,746,183 117,711,703 Retained earnings (Note 7) 192,908,804 189,678,988 Total 332,392,443 329,579,013 Less cost of common stock in treasury (1969, 321,756 shares; 1968, 301,768 shares) 12,081,023 11,475,377 Total stockholders' equity 320,311,420 318,103,636 Total $544,643,979 $507,385,223 See iVotes to Financiaf Statements. TuMN 446001 17

Pet Foods Wen Proa::cts :..mpary rnc. In 1969, sales and earnings or Allen Products Company reached record highs. ALPO dog food sales increased approximately five times the average rate of growth of the pet food industry, and the ALPO line substantially widened its leadership in dollar sales over all other brands of canned dog foods. In the four year period from 1966 through 1969, ALPO was the only dog food to increase its share of market. Sales continued to climb in foreign markets. Two ALPO products introduced in several markets in late 1968, Meat Trio and Savory Stew, were given national distribution in 1969 and were favorably received. In all, 12 ALPO canned dog food products are available for the nation's growing canine population, which now totals approximately 25 million dogs in some 19 million homes. In October, the company introduced ALPO MIX-MATE, a new type of dry dog food, in several test markets. A new idea in dog feeding, ALPO MIX-MATE has a unique formula with a rice base for 8 greater digestibility and nourishment, and is the first dry dog food especially made to be mixed with canned ALPO products or fresh meat. It is designed particularly for dog owners who mix canned and dry foods, a majority of the total. MIX-MATE is the only product of its type presently on the market, and when mixed with ALPO canned dog food, it provides the most nutritious pet food diet available today. With cat foods accounting for some 25 per cent of the more than $1 billion pet food market, a new luxury line of canned cat foods called CAT FEAST was introduced in late 1968. Results in test markets have been favorable for the fish varieties in the CAT FEAST line, and expanded distribution is planned for 1970. In November, 1969, Allen Products opened its first can manufacturing plant as an addition to the original processing plant in Allentown, Pennsyl- vania. Allen Products' other manufac- turing facilities are located in Cleveland, Ohio and Crete, Nebraska. In order to maintain ALPO's quality standards, as well as the company's potential to develop new products, research and development facilities in Allentown were almost doubled in 1969. Liv-A-Snaps, Incorporated, a manu- facturer of pet food treats, located in St. Paul, Minnesota, was acquired in December, 1969. The company's - nationally distributed products include LIV-A-SNAPS and CHAR-O-SNAPS, both high-protein, beef liver w-afers for dogs, cats and other pets. 1eady rji On January 29, 1969, Liggett & Myers acquired Ready Foods Corp., a manu- facturer of popular-priced pet foods, including VETS' canned dog foods and VETS' NUGGETS, a dry dog food. In its first 11 months as a Liggett & Myers subsidiary, Ready Foods increased sales substantially over the corresponding year-ago period. A new Chicken Flavor variety was added to the nationally distributed VETS' line of Beef and Liver canned dog foods. Two new hydrostatic cookers, which automatically process, cool, wash and dry 600 cans a minute for immediate labeling and boxing, were installed in the Camp Hill, Pennsylvania and the Kansas City, Kansas processing plants. The Chicago and Los Angeles plants already have this modern equipment. Automated manufacturing facilities for processing dry dog food :vere installed in a new addition !,) the Kansas City plant, doubling the production capacity of that location. Can manufacturing operat:ons at the Camp Hill plant were increased to full capacity. The company also makes cans at the Chicago and Los Ar1 Qe'es plants. Alpo ... the largest-selling canned dog food in America TI1VIN 445992

Liggett & Myers Incorporated 630 Fifth Avenue, New York, N.Y. 10020 TIMN 446010

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 1969 1968 Balance, January 1 $117,711,703 $117,080,671 Add (Deduct) Excess of cash paid (in lieu of issuing fractional shares of $5.25 preference stock) to holders of Austin, Nichols' common stock over the par value of 296 shares of $5.25 preference stock restored to paid-in capital (Note 4) 29,304) - Excess of par value of 105,954 shares of common stock issued and cash paid in lieu of issuing fractional shares of common stock over the par value of 46,112 shares of $5.25 preference stock converted into common stock (Note 4) (62,043) - Capital stock and surplus transactions of Austin, Nichols for the period from August 1, 1967 through date of merger (Note 1) - 1,066,618 Costs incident to merger with Austin, Nichols - (435,988) Excess of sales price over par value of capital stock sold to officers and employees under the Company's stock option plans (Note 5) 23,177 402 Excess of par value over cost of 7% preferred stock acquired 12,951 Excess of 1968 average quoted market value over cost of 23,012 shares of common treasury stock issued in 1969 in payment of awards for the 1968 Plan year under incentive compensation plans for employees (Notes 4 and 6) 84,951 Othe r 4,748 Balance, December 31 $117,746,183 $117,711,703 See Notes to Financial Statements. Statement of Consolidated Retained Earnings For the Years Ended December 31 1969 1968 Balance, January 1 $189,678,988 $186,332,662 Add (Deduct) Net earnings for the period (Note 1) 24,898,167 24,066,287 Cash dividends-Liggett & Myers Preferred stock-$7 per share (967,530) (977,347) Preference stock-$5.25 per share (1,450,318) - Common stock-$2.50 per share (19,250,503) (19,063,726) Cash and stock dividends-Austin, Nichols (335,540) Excess of cost over par value of 7% preferred stock acquired (44,400) Excess of cash and stock dividends declared over net earnings ($785,750) of Austin, Nichols for the period from August 1, 1967 through December 31, 1967 (Note 1) - (298,948) Balance, December 31 (Note 7) $192,908,804 $189,678,988 See Notes to Financial Statements. TIMN 446003 19

LIGGETT & MYERS INCORPORATED AND CONSOLIDATED SUBSIDIARIES Statement of Consolidated Source and Application of Funds For the Years Ended December 31 1969 1968 Source of Funds From operations Earnings before minority interest $25,733,452 $24,849,835 Depreciation and amortization 10,465,215 9,371,170 Equity in net losses of unconsolidated foreign subsidiaries since dates of acquisition 1,256,000 Total 37,454,667 34,221,005 Decrease in working capital 15,456,852 2,575,087 Increase in long-term debt 13,791,646 8,382,617 Proceeds from exercise of stock options Liggett & Myers 23,765 412 Austin, Nichols - 211,594 Net earnings of Austin, Nichols, less cash dividends of $227,685, for the period from August 1, 1967 through December 31, 1967 (Note 1) - 558,065 1968 average quoted market value of 23,012 common shares issued in 1969 in payment of awards for the 1968 Plan year under incentive compensation plans for employees 960,032 - Other 423,516 Total $67,686,962 $46,372,296 Application of Funds Payment of cash dividends Liggett & Myers $21,668,351 $20,041,073 Austin, Nichols - 335,540 Additions to franchisss and goodwill 22,698,959 2,035,127 Cost of common and preferred stock purchased 1,978,776 1,252,038 Net additions to property, plant, and equipment (including property of consolidated subsidiaries purchased) 15,414,923 11,082,110 Investments in and advances to unconsolidated foreign subsidiaries 3,522,601 6,735,941 Increase in other investments 1,312,608 2,266,367 Reductions in minority interest due to changes in capital and payment of dividends to minority stockholders 534,038 346,996 Increase in prepaid expenses and deferred charges 458,750 1,841,116 Costs incident to merger with Austin, Nichols - 435,988 Other 97,956 Total $67,686,962 $46,372,296 20 See Notes to Financial Statements. YIMN 446004

Directors RAYMOND J. MULLIGAN J. BOWLING ANDERSON KENNETH McALLISTER JONATHAN W. OLD,JR. JAMES G. HUCKABEE, JR. HOWARD W, McCALL, JR. FREDERICK P. HAAS FREDERICK SHEFFIELD EDWARD 24 J. PARRISH WILLIAM W. BATES, JR. S BACON FULLER ABRAHAM ROSENBERG CURT K. BRILL OGDEN WHITE SAMUEL WHITE RALPH P. MOORE ROBERT L. TAYLOR 'I Printetl in U.S.A.

LIGGETT & MYERS INCORPORATED AND CONSOLIDATED SUBSIDIARIES 18 Statement of Consolidated Earnings For the Years Ended December 31 1969 1968 Revenues Net sales (including excise taxes: 1969, $170,117,975; 1968, $178,992,253) $658,784,013 $617,240,028 Royalties 2,566,477 1,866,352 Total 661,350,490 619,106,380 Costs and Expenses Cost of goods sold 471,502,084 447,982,841 Selling, administrative, and general expenses 115,245,933 103,375,117 Amortization of J&B franchise and excess of cost of investments in certain subsidiaries over equity in their net assets (Note 1) 3,740,699 3,740,495 Equity in net losses of unconsolidated foreign subsidiaries since dates of acquisition (Note 1) 1,256,000 Total 591,744,716 555,098,453 Operating Income 69,605,774 64,007,927 Other Expenses Corporate expenses 3,712,629 3,357,809 Interest expense 9,924,817 7,963,245 Other (income) deductions, net (1,996,913) (1,656,305) Total 11,640,533 9,664,749 Earnings Before Income Taxes and Minority interest 57,965,241 54,343,178 Provision (Credit) for Income Taxes Federal Currently payable 29,399,938 27,039,334 Deferred 313,617 (191,473) Other Currently payable 2,565,779 2,681,042 Deferred (47,545) (35,560) Total 32,231,789 29,493,343 Earnings Before Minority Interest 25,733,452 24,849,835 Minority Interest in Earnings of Consolidated Subsidiaries 835,285 783,548 Net Earnings $ 24,898,167 $ 24,066,287 Earnings Per Share (a) Per common share $2.92 $2.82 Per common share-assuming full dilution $2.87 $2.78 (a) Earnings per common share were computed by dividing net earnings, as adjusted for preferred and preference stock dividend requirements, by the weighted average number of shares of common stock outstanding during each year. Earnings per common share-assuming full dilution were de- termined on the assumption that the $5.25 con- vertible preference stock outstanding at the end of each year was converted into shares of com- See Notes to Financial Statements. mon stock at !~e eeq- ~7 .i each year, and that the converswns 0 s. n a•ele-er+ce stock into com- mon stock .1 :h :cc,.rred during 1969 had oc- curred at the beg~nn.ng of the year. The computa- tion of fWly-diiuted earnings per share also comprehends the assumed exercise of options for the purchase of shares of preference and common stock where the effect thereof would be dilutive. TIMN 446002

By Using Your Company's Products and Recommending Them to Your Friends, You Will Add to the Value of Your Investment Cigarette and Tobacco Division Brussels, Belgium Danville, Virginia Durham, North Carolina *New York, New York Richmond, Virginia Rocky Mount, North Carolina St. Louis, Missouri Stoughton, Wisconsin Licensing Agreements in: Argentina Holland Australia Italy Austria Mexico Belgium Philippines Bolivia Switzerland Brazil West Germany Costa Rica Equity Positions in: Argentina Peru Brazil Switzerland Mexico West Germany The Pinkerton Tobacco Company `Toledo, Ohio - Loose Leaf Chewing Tobaccos PAY CAR RED MAN RED HORSE UNION STANDARD Gary Tobacco Company (Turkish Tobaccos) Cavalla, Greece 'Durham, North Carolina izmir, Turkey Xanthi, Greece • Alcoholic Beverages The Paddington Corporation •New York, New York Scotch Whisky J&B Rare Carillon Importers Ltd. •New York, New York Cigarettes CHESTERFIELD (King, Regular) CHESTERFIELD FILTER CHESTERFIELD MENTHOL 101 CHESTERFIELD FATIMA HOME RUN LARK LARK 100 L&M FILTER (King, Box, Regular) L&M GOLDEN 100 L&M MENTHOL 100 OASIS MENTHOL PICAYUNE PIEDMONT Smoking Tobaccos BUCKHORN BUFFALO COUNTRY GENTLEMAN DINNER BELL DUKE'S GRANGER KING BEE MASTERPIECE PLOW BOY S&M STERLING BLEND SUMMERTIME SWEET TIP TOP VELVET VIRGINIA EXTRA Chewing Tobaccos Plug CLIPPER DRUMMOND NATURAL LEAF DRUMMOND'S J. T. FISH HOOK HORSE SHOE KING PIN MASTERPIECE PICK NATURAL LEAF SPARK PLUG STAR TINSLEY'S THICK UNCLE SAM UNION STANDARD W.N.T. NATURAL LEAF Twist GRANGER PICNIC Alcoholic Beverages GRAND MARNIER French Liqueur BOMBAY English Dry Gin CHERRY MARNIER French Liqueur BOMBAY French Vermouth GOLD LEAF French Cognac BARDINET NAPOLEON French Brandy THE "ANTIQUARY" 12-Year-Old Scotch BARDINET French Cordials and Fruit Flavored Brandies BARDINET RHUM NEGRITA ACHAIA CLAUSS Greek Still Wines DOPFF, ALSATIAN Brandies and Wines CALVET BORDEAUX and Burgundy Wines Austin, Nichols & Co., Incorporated •Maspeth, New York Washington, D.C. Alcoholic Beverages WILD TURKEY Bourbon Whiskey GRANT'S 8-Year-Old and 12-Year-Old Scotch Whisky GLENFIDDICH 10-Year-Old Single Malt Scotch Whisky METAXA Greek Liqueurs CAMPARI Italian Aperitif VIRGINIA GENTLEMAN Bourbon Whiskey PADDY Irish Whisky MURPHY'S Irish Whisky WYBOROWA Polish Vodka MOUQUIN 10-Year-Old Italian Brandy PEDRO West Indian Rum FIOR D'ALPI Italian Liqueur NICHOLS Blended Whiskey CHARLES HEIDSIECK French Champagne F. CHAUVENET Burgundy and Bordeaux Wines NATH'L JOHNSTON ET FILS Bordeaux Wines WOLTNER FRERES Chateau Bottled Bordeaux Wines "WEDDING VEIL" Liebfraumilch LAGOSTA RosB Portuguese Wine • Pet Foods Allen Products Company, Inc. 'Allentown, Pennsylvania Cleveland, Ohio Crete, Nebraska Liggettr-MYers ALPO Canned Dog Foods BEEF CHUNKS HORSEMEAT CHUNKS CHICKEN LIVER CHUNKS LAMB CHUNKS RIB OF VEAL MEAT BALLS WITH GRAVY EGGS 'N BEEF CHOPPED BEEF CHOPPED HORSEMEAT MEAT TRIO SAVORY STEW Liv-A-Snaps, Incorporated *St. Paul, Minnesota Pet Food Treats LIV-A-SNAPS CHAR-O-SNAPS Ready Foods Corp. Camp Hill, Pennsylvania 'Chicago, Illinois Kansas City, Kansas Los Angeles, California VETS' Canned Dog Foods BEEF CHICKEN FLAVOR LIVER FLAVOR VETS' Dry Dog Foods REGULAR NUGGETS GRAVY STYLE NUGGETS • National Oats Company Cabool, Missouri 'Cedar Rapids, Iowa (Cereal and Pop Corn Division) Crane, Missouri Delaware, Ohio 'East St. Louis, Illinois (Feed Division) - LaBelle, Missouri Wall Lake, Iowa Cereal Products INSTANT CREAM OF OATS (plain and flavored) CREAM OF OATS 3-MINUTE STIR 'N EAT (plain and flavored) OATMEAL 3-MINUTE QUICKER OATS 3-MINUTE OLD FASHIONED OATS 3-MINUTE RAISINOATS 3-MINUTE WHITE CORN MEAL 3-MINUTE YELLOW CORN MEAL 3-MINUTE GRITS Pop Corn 3-MINUTE POP CORN 3-MINUTE COL-R-CORN Feeds CORNO products • Brite Industries, Inc. 'Providence, Rhode Island St. Petersburg, Florida Watch Bands BRITE MEDALIST ROGER WILLIAMS CARRIAGE COLLECTION SUPERSTRAP "HUSH PUPPIESO" BRIGADIER 'Neadquarters locations TIMN 445997 13