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National Oats Company Further progress in the Company's diversifica- tion program was made by the acquisition on Sep- tember 29, 1967, of the net assets of National Oats Company, which produces packaged cereal prod- ucts, pop corn, and the CORNO line of animal and poultry feeds. Sales and earnings by National Oats Company increased to record highs in 1967. The packaged consumer products include: CREAM OF OATS, a new and different breakfast cereal, which was introduced nationally in the last quarter of 1967; INSTANT CREAM OF OATS, which was introduced in some areas in late 1967 and should be in national distribution by mid-1968; 3-MINUTE POP CORN, 3-MINUTE COL-R-CORN, 3-MINUTE OATS, 3-MINUTE RAISINOATS, 3- MINUTE WHITE CORN MEAL, 3-MINUTE YEL- LOW CORN MEAL, and 3-MINUTE GRITS, all products which have enjoyed their primary success in the Southeast and Southwest, but which are now being introduced in other areas and will eventually be in national distribution. The company is the second largest producer of rolled oats and the largest processor and packer of pop corn for home consumption, the 3-MINUTE brand. It also provides large quantities of individ- ual oat products to the processors of ready-to-eat cereals, the bakery trade, and manufacturers of baby foods. In addition, the National Oats Com- pany produces BUTTERFLAKE POP CORN for the commercial and concessionaire trades. Factory Locations National Oats Company has a rolled oats mill in Cedar Rapids, Iowa; pop corn processing plants in Wall Lake, Iowa; Delaware, Ohio; and Hagerstown, Maryland; and animal and poultry feed mills in East St. Louis, Illinois, and Cabool, Missouri. Products CREAM OF OATS INSTANT CREAM OF OATS 3-MINUTE POP CORN 3-MINUTE COL-R-CORN 3-MINUTE OATS 3-MINUTE RAISINOATS 3-MINUTE WHITE CORN MEAL 3-MINUTE YELLOW CORN MEAL 3-MINUTE GRITS BUTTERFLAKE POP CORN

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Allen Products Company, Inc. Sales and earnings by Allen Products again in- creased to record highs in 1967. Sales increases of ALPO dog food were several times greater than average industry gains, and the ALPO line of prod- ucts continues to be the nation's largest-selling all- meat dog food. ALPO sales also continued to climb in Canada and Europe. The company advertises: "Your dog needs meat. ALPO is 100% meat." Although ALPO prices are higher, the consumer is not paying for starchy cereals and other fillers. One advertising trade journal referred to Allen Products Company as a "breakthrough advertiser," and another referred to ALPO as "one of the great all-time success stories of TV advertising." The ALPO line of products in- cludes Beef Chunks, Chicken, Liver Chunks, Horse- meat Chunks, Lamb Chunks, Meat Balls with Gravy, Scramble (a mixture of eggs and meat), and Rib of Veal, which was introduced in 1967. Two new prod- ucts for puppies and cats, Chopped Horsemeat and Chopped Beef, were test-marketed in the last quar- ter of 1967 and were introduced regionally begin- ning in January, 1968. Other new products will be test-marketed in 1968. In order to keep pace with the increasing demand for ALPO, construction of a third processing plant was started on a 12-acre site in Cleveland, Ohio, in July, 1967, and will be completed during the spring of 1968. Capacity of the new plant will be equal to the original plant in Allentown, Pennsylvania, and to the second plant which was opened in Crete, Nebraska, in August, 1965. The company owns a 16-acre tract of land in Oxnard, California, which will be the site for another plant. 'actory Locations fflen Products Company as processing plants :)cated in Allentown, 'ennsylvania, and Crete, Tebraska. Products BEEF CHUNKS CHICKEN LIVER CHUNKS HORSEMEAT CHUNKS LAMB CHUNKS MEAT BALLS WITH GRAVY SCRAMBLE RIB OF VEAL Irradiated Foods, Inc. In June, 1967, Allen Products Company, Inc., to- gether with Isotopes, Inc. (a Teledyne, Inc. com- pany), Martin Marietta Corporation, and Uniroyal, Inc., formed a new company, which was selected from among ten corporate groups to enter into a contract with the United States Atomic Energy Commission for the design, construction, and operation of the first large, commercial processing plant for the preservation by irradiation of food for human consumption. The name of this new com- pany is Irradco, Inc. Construction of the new irradiation plant at Allentown, Pennsylvania, will begin when the United States Food and Drug Administration ap- proves the irradiation of ham for human consump- tion. Irradiation destroys bacteria which normally cause spoilage so that food can be stored for months or even years without refrigeration and without loss of taste or wholesomeness. Irradiation of food could eventually prove important in popu- lous or military areas where there are food and refrigeration shortages. Irradiated bacon and pota- toes have already been approved by the United States Food and Drug Administration for use by the Armed Forces. The United States Department of Defense will purchase irradiated meat from the new company, and the remainder of the production will enter normal commercial distribution channels for civil- ian foods. Although it is not planned to irradiate ALPO dog food, the company may eventually develop and market irradiated pet food products. President of the new company, Irradco, Inc., is Robert F. Hunsicker who is also a Director of Lig- gett & Myers and President of Allen Products Company, Inc. TIM1,4 446052 12

HlghhghtS o f Operations Liggett & Myers Tobacco Company and Subsidiary Companies 1967 1966 Net sales ............................ S575.221.446) $577,476,258 Income and franchise taxes ............. 26,497.364 24,462,768 Net earnings ......................... 23,932,383 22,276,920 Net earnings, including minority interest, as a percentage of net sales ........... 4.34°/0 4.07°/0 Net earnings applicable to common stock $ 22,895,746 $ 21,224,550 Net earnings per share of common stock 5.96 5.52 Dividends per share of common stock. .. 5.00 5.00 Current assets ........................ 324,370,973 351,591,547 Current liabilities ..................... 82,974,278 89,459,670 Ratio ................................ 3.9 to 1 3.9 to 1 Long-term debt ....................... $ 75,000,000 $ 72,644,670 Stockholders' equity Preferred stock ................... 14,202,100 14,994,100 Common stock ................... 290,916,211 288,775,023 Per share of common stock ......... 76.03 75.16 Number of stockholders ................ 49,391 49,269 Number of employees .................. 8,087 8,539 Net Sales millions 600 - I 200 100 '61 '62 '63 '64 '65 '66 '67 18 TIMN 446057

ALP Liver CHUNKS & Meat by-prod~~s t:1 ~~~~ 1 ~ ~, , FOR FOR m at tHUN[iS E4 !:t hy-prodtKls -. s,.; FOR )R I ® ~icken ~~. ' ~. T ;lcenPaol _ ..~. ® Meat Balls ; with Grovy' ~ rrnpRovp.- i, FOR Lamb CHtIt~";; ~ & Meat by-p~~ ' ® ® Beef CHtIN1t5 & Meat by-prvdx::: ~ A~.P ~ RALp f4R R 0 r 0 Meat Ba11s wrth Gravy' 1" K20VEP ' or'MM =~L _.~~ .. ...~ Q W11 ® R S~ramble FOR TIMN 446051

Consolidated ASSETS 1967 1966 CURRENT ASSETS Cash (including negotiable time certificates of deposit: 1967, $200,000; 1966, $7,500,000) ................. $ 8,455,722 $ 20,827,039 Marketable securities-at cost which approximates market value ................................. 1,846,831 2,538,813 Accounts receivable Customers (less allowances for discounts and doubt- ful accounts: 1967, $543,576; 1966, $598,674) ..... 49,077,512 43,013,729 Others ....................................... 2,537,039 2,354,343 Inventories-principally at average cost (Note 2) Leaf tobacco .................................. 224,992,911 230,661,994 Bulk whiskeys ................................ 73,321 2,571,179 Finished goods and work in process .............. 23,580,469 37,856,027 Other materials and supplies .................... 13,807,168 11,768,423 Total current assets ........................ 324,370,973 351,591,547 INVESTMENTS-at cost Capital stocks of and advances to foreign companies. . 8,449,469 6,132,503 Other .......................................... 1,106,377 1,353,212 Total investments ......................... 9,555,846 7,485,715 PROPERTY, PLANT, AND EQUIPMENT-at cost (Note 3) Land .......................................... 3,407,830 3,734,743 Buildings ....................................... 27,908,389 26,057,011 Machinery and equipment ......................... 77,718,191 70,822,714 Total .................................... 109,034,410 100, 614,468 Less accumulated depreciation ............... 67,798,254 61,911,790 Property, plant, and equipment-net .......... 41,236,156 38,702,678 FRANCHISES, GOODWILL, BRANDS, AND TRADE- MARKS-at cost, less amortization (Note 1) ......... 93,579,263 73,592,627 PREPAID EXPENSES AND DEFERRED CHARGES ...... 3,159,879 3,341,160 TOTAL .................................. $471,902,117 $474,713,727 See Notes to Financial Statements. TIMN 446059 20

New Operations Center Welcome from President Harrington The Company's new Operations Center in Durham, North Carolina (above), was dedicated on October 20, 1967. Housing several hundred skilled personnel and the most modern electronic data processing equipment, the new Operations Center centralizes the accounting and distribution functions of the Company's diversified, worldwide operations. The Center provides greater efficiencies as well as instant, accurate, and meaningful information essential to continuous growth in today's competitive world economy. U.S. Congressman Nick Galifianakis from the Fifth District of North Carolina (right, in photograph at left) delivered the dedication address, and Mayor R. Wensell Grabarek (left, in same photograph) expressed greetings from Durham. Others shown in ribbon-cutting ceremony are J. Bowling Anderson, Senior Vice-President, Finance; Milton E. Harrington, President; and Jonathan W. Old, Jr., Executive Vice-President. 16 TIMN 446055

t t Balance Sheet as o f December 31 LIABILITIES CURRENT LIABILITIES Notes payable .................................. Accounts payable ............................... Dividends payable on preferred stock ............... Taxes payable and accrued ....................... Other accrued liabilities .......................... Total current liabilities ..................... LONG-TERM DEBT 6°/o sinking fund debentures, due 1992 ($3,000,000 to be redeemed annually from 1972 to 1991) .......... Other .......................................... Total long-term debt ....................... DEFERRED COMPENSATION ....................... MINORITY INTEREST IN SUBSIDIARIES ............. STOCKHOLDERS' EQUITY 7% cumulative preferred stock, $100 par value-au- thorized, 341,398 shares; issued, 225,141 shares; in treasury, 1967, 83,120 shares; 1966, 75,200 shares. .. Common stock, $25 par value-authorized, 5,000,000 shares; issued, 1967, 3,963,628 shares; 1966, 3,963,- 528 shares (Note 5) ............................ Paid-in capital in excess of par values of capital stocks (Note 5) ...................................... Retained earnings (Note 6) ........................ Total .................................... Less cost of common stock in treasury (1967, 137,484 shares; 1966, 121,500 shares) .................... Total stockholders' equity ................... TOTAL .................................. See Notes to Financial Statements. Liggett & Myers Tobacco Company and Subsidiary Companies 1967 1966 $ 46,868,000 $ 39,472,791 6,820,169 13,865,550 249,447 262,397 21,276,800 27,130,286 7,759,862 8,728,646 82,974,278 89,459,670 75,000,000 72,300,000 - 344,670 75,000,000 72,644,670 1,523,163 832,070 7,286,365 8,008,194 14,202,100 14,994,100 99,090, 700 99,088,200 21,590,734 21,586,697 180,742,516 177,908,157 315,626,050 313,577,154 10,507,739 9,808,031 305,118,311 303,769,123 $471,902,117 $474,713,727 21 TIMN 446060

Financial Review / 1967 Sales and Earnings Consolidated net earnings increased from $22,- 276,920 in 1966 ($5.52 per share of common stock) to $23,932,383 in 1967 ($5.96 per share), an increase in earnings of 7.4 per cent. Net sales in 1967 by the Company and its subsidiaries were $575,221,446, compared with $577,476,258 in 1966. Dividend Record Common stock dividends have been paid each year since the Company was incorporated in 1911. Common stock dividends in 1967 consisted of four quarterly payments of $1.25 each, a total of $5.00. Four quarterly dividends of $1.75 were distributed on preferred stock. There were 49,391 stockholders at the end of the year. Total common and preferred dividends paid in 1967 amounted to $20,253,547. The balance of earn- ings retained for use in the business amounted to $3,678,836. A regular quarterly dividend of $1.25 per com- mon share was paid March 1, 1968. Taxes Federal and state income taxes and franchise taxes were $26,497,364 in 1967, equal to $6.90 per share of common stock. This compares with net earnings of $5.96 per share of common stock. Federal and other excise taxes (including liquor import duties) included in consolidated sales amounted to $190,420,000. The Federal excise tax on cigarettes is eight cents on each package, and the liquor tax rate is $10.50 per gallon (excluding duty of approximately one dollar). Although the industries generally do not collect state and muni- cipal excise taxes, these add up to substantial addi- tional taxes paid by the consumer. Capital Expenditures Capital expenditures during 1967 consisted chief- ly of disbursements for construction of the new Operations Center in Durham, North Carolina, and for additional facilities for manufacturing ALPO products. These expenditures totaled $7,300,000, compared to $5,600,000 in 1966. Depreciation charges in 1967 aggregated $4,823,839, compared to $4,597,409 in 1966. Financial Condition The sound financial condition of the Company is indicated by the ratio of current assets to current liabilities which is 3.9 to 1, and to the fact that long- term debt is 19.7 per cent of total capitalization. No additional long-term financing was required during 1967, although the amount of short-term notes payable increased approximately $7,400,000. Further financing may be required in connection with our expansion and diversification program. The Company reacquired 89,600 shares of com- mon stock during 1967 and issued 73,616 shares for the acquisition of the net assets of National Oats Company. These transactions brought the total number of common shares held in treasury to 137,484. The Company also reacquired 7,920 shares of noncallable 7 per cent preferred stock during 1967, which brought the total number of preferred shares held in treasury to 83,120. TIMN 446056 17