Tobacco Documents Online

Contents Highlights of Operations page 2 Letter to Stockholders 3 Sales, Earnings and Dividend Record 5 Financial Condition 6 Taxes, Capital Expenditures and Manufacturing 7 Export Sales and Leaf Tobacco 8 Research 9 Advertising and Marketing 10 Disposition of Total Earnings and Opinion of Certified PuL"^ Accountants 11 Consolidated Balance Sheet 12 Consolidated Earnings 14 Consolidated Retained Earnings ai. . Notes to Financial Statements 15 Ten Years in Review 16 co Company 1963 Annual Report Stockholders' Annual Meeting The annual meeting of stockholders will be held on Tuesday, March 31, 1964, at the Hotel Plaza, Journal Square, Jersey City, New Jersey, at 2:30 P.M. Eastern Standard Time. Formal notice of this meeting, together with the proxy and proxy statement, will be mailed to stockholders on February 28, 1964. Stockholders who are unable to attend the meeting are urged to sign their proxies and return them promptly to the Company so that the stock of the Company will be represented as fully as possible at the meeting. Today the Company is owned by ap- proximately 50,000 stockholders. About 83 per cent of the total common and pre- ferred stock was voted by person or proxy at the last annual stockholders' meeting on March 26, 1963.

T609VV &WIZ Liggett & Myers Tobacco Company Highlights o f Operations 1963 1962 Net sales . . . ... . . . . . . $502,683,153 $499,955,681 Earnings before taxes . . . . . . . 51,631,469 53,700,830 Income and franchise taxes ..... 26,928,000 28,290,000 Earnings before preferred dividends . 24,703,469 25,410,830 Net earnings after preferred dividends . 23,560,642 24,247,598 Percentage of net sales ....... 4.69% 4.85% Net earnings per share of common stock $5.96 $6.14 Dividends per share of common stock . $5.00 $5.00 Current assets . . . . . . . . . . Current liabilities . . . . . . . . Ratio . . . . . . . . . . . . . Funded debt . . . . . . . . . . Capital stock . . . . . . . . . . Additional paid-in capital ... . . . Retained earnings . . . . . . . . $359,124,301 $365,870,330 28,417,415 30,315,244 12.6 to 1 12.1 to 1 61,250,000 67,000,000 115,068,925 115,232,175 21,165,700 21,070,828 170,145, 567 166, 460, 589 Approximate number of stockholders . 50,000 50,000 2

Directors of Liggett & Myers Tobacco Company J. BOWLING ANDERSON WILLIAM A. BLOUNT LAWREN W. BRUFF

Officers ZACH TOMS President cmd Chief Executi~•e Oficer MILTON E. HARRINCTON Executive Vice-President, Chairman Executive Committee J. BOWLING ANDERSON Vice-President, Finance - LAWRENCE W. BRUFF Vice-President, Adi•ertising FREDERICK R. DARKIS Vice-President, Research FRANCIS H. HORAN Vice-President and General Counsel GRAYDON B. LEAKE Vice-President, Sales EDWARD J. PARRISH Vice-President, Export Sales LOY D. THOMPSON Vice-President, Manufacturing and Lea f SAMUEL WHITE Vice-President, Marketing RALPH P. MOORE Treasurer RUSSELL M. CHENOWETH Secretary RUSSELL G. CUTTER Auditor R. HAYV"OOD HOSEA Assistant Treasurer and Assistant Secretary JAMES ',1vRAN Assistant Treasurer and Assistant Secretary CHARLES B. MORGENTHALER Assistant Secretary DONALD G. NYREEN Assistant Secretary Directors J. BOWLING ANDERSON WILLIAM A. BLOUNT LAWRENCE W. BRUFF FREDERICK R. DARKIS MILTON E. HARRINGTON FRANCIS H. HORAN GRAYDON B. LEAKE HOWARD W. McCALL, JR. C. GRICE McMULLAN JONATHAN W. OLD, JR. EDWARD J. PARRISH FREDERICK SHEFFIELD FRANK TALBOTT, JR. LOY D. THOMPSON ZACH TOMS SAMUEL WHITE Transfer Agent: Chemical Bank New York Trust Co. 30 Pine Street, New York, N.Y. 10015 Registrar: First National City Bank 55 Walt Street, New York, N.Y. 10015 TIMN 446087

Operations 1963 '57 '58 '59 '60 '61 '62 '63 '57 '58 '59 '60 '61 '62 '63 Sales Net sales for 1963 were $502,683,153, compared with $499,955,681 for the previous year, represent- ing a slight increase. Sales of L & M filters continued to increase during the year. There was a further de- cline in the sales of the Company's non-filter brands. National distribution of the new LARK cigarette, with the 3-piece Keith filter, was begun in August, and the sales results have been most satisfactory. Earnings Consolidated net earnings were slightly lower than in the previous year, amounting to $24,703,469 ($5.96 per share of common stock), compared with $25,410,830 ($6.14 per share) for 1962. The principal reason for the decrease was the extra promotional and advertising costs incurred in introducing LARK cigarettes in the national market. Dividend Record Dividends on common shares have been paid every year since the Company started in November, 1911. Total payments in 1963 amounted to $5.00 per share. consisting of four quarterly dividends of Si.'~5 vach. Four quarterly dividends of $1.75 per share N%c-rc• also paid on the preferred stock. At the 5 TIMN 446094

February 3, 1964 To the Stockholders: Net sales for the year amounted to $502,683,153, representing an increase of $2,727,472 over 1962 sales. Domestic unit sales of cigarettes showed an increase over sales for the previous year, while export sales were slightly off. Export sales for the whole industry were less in 1963. Net earnings amounted to $5.96 per share of common stock, compared with $6.14 in 1962. During the last six months of the year, earnings were affected by heavy expenses, amounting to several million dollars, incurred in advertising and promoting the new LARK cigarette; otherwise, we estimate that earnings would have been well in excess of 1962 earnings. The financial condition of the Company continues strong with a ratio of current assets to current liabilities of 12.6 to 1. There were no short-term borrowings at the end of the year. Consumer demand for the Company's new filter brand, LARK, with the 3-piece Keith filter, con- taining charcoal granules in a separate filter chamber, is steadily increasing. Good taste and unique filtration make LARK a distinctive cigarette. With the development of increased LARK sales, your Company will have two popular filter-tip brands; namely, L & M and LARK. The trend to filter ciga- rettes continues, presently accounting for close to 60 per cent of the total. The report of the Surgeon General's Advisory Committee on Smoking and Health was released on January 11, 1964, and we did not have an adequate opportunity to review it before this report had to be printed to meet our required mailing schedule. It is now being studied by our permanent staff of scientists and technical experts. Its findings will be fully considered in the planning of our research and development programs as well as in the planning of our marketing activity. If, after having studied this report, we feel that an additional statement will be meaningful, it will be forthcoming. In 1963, industry cigarette production increased by approximately 3 per cent. Any forecast for 1964 must take into account the possible effect on sales of the above-mentioned report. However, there are some other favorable factors, including continued high purchasing power of the public and an increase in population. We are pleased that the distinguished American Medical Association has announced a program of research for the study of smoking and health. Your Company will continue its research in associa- tion with Arthur D. Little, Inc., Cambridge, Massachusetts, with the aim of offering smokers the best possible quality products. We continue to study possible expansion of our foreign business, and presently we are negotiat- ing with a well-established firm to engage in manufacture outside the United States. Our manufac- turing arrangement with S. A. Ed. Laurens-"Le Khedive", Switzerland, announced last year, has been a successful and satisfactory one. During the year, the Company established a new division to study acquisitions or mergers for the possible diversification of your Company's business along profitable and advantageous lines. This subject has been actively pursued, and a number of situations carefully reviewed, but there is none with respect to which any announcement can be made at this time. On behalf of the Directors, I wish to express grateful appreciation to the employees of the Com- pany for their good work during the year and to thank the stockholders for their continued interest and loyal support. Respectfully submitted on behalf of the Directors, 3 TIMN 446092

ZACH TOMS ` Executive Personnel On March 31, 1963, William A. Blount, Chairman of the Board and Chief Executive Officer, retired. He remained as a Director of the Company. Zach Toms, President, became Chief Executive Officer on April 1, 1963. Milton E. Harrington, former Vice-President and Leaf De- partment Manager, was elected Executive Vice-President on March 20, 1963, and Chairman uF the Executive Committee on April 1, 1963. Ralph P. Moore, former :lstiist,int Treasurer, was elected Treasurer on April 1, 1963. On December 18, 1963, Hm«.ird 'A' M,.Call, Jr., Vice-Chair- man of the Chemical Bank Ne%~ l'ni k Trust Company, New York, N.Y. and Frank Talbott. Jr., Lhciirman of the Board of Dan River Mills, Inc., Danville, Virginia, were elected to the Board of Directors. TIMN 446088

t end of the year, there were approximately 50,000 stockholders sharing the dividends. Total dividends paid in 1963 on both common and preferred stock amounted to $20,905,280. The bal- ance of the year's earnings amounting to $3,798,189 was retained for use in the business. This compared with $4,492,552 retained in 1962. On January 14, 1964, a regular dividend of $1.25 per common share was declared, to be paid March 2, 1964, to stockholders of record February 21, 1964. Financial Condition The Company's over-all financial condition con- tinued to improve in 1963. For more than four years, it has not been necessary to obtain short-term loans; cash not needed immediately for current operations has been invested in short-term interest-bearing obligations of the United States Government, banks, Part of the newly installed IBM Computer System. When in full service, this new Tele-processing system will link our factories and offices with warehouses throughout the country, assuring Liggett & Myers' customers more efficient service. ( 6 TIMN 446095

machinery to produce it. All of the design and as- sembly work of this machinery were done by Lig- gett & Myers' personnel. The Company's cigarette factories in Durham, North Carolina, and Richmond, Virginia, and its pipe and plug tobacco factory in St. Louis, Missouri, continue to be among the most modern in the indus- try. Its leaf tobacco processing plants in Durham and Rocky Mount, North Carolina; Danville, Virginia; and Lexington and Paris, Kentucky, pro- vide facilities well located in the tobacco-growing areas and are excellently equipped to serve the Com- pany's needs. Export Sales The export sales of the Company continue on a most satisfactory basis. Our accomplishments in this respect are due in no small measure to the fine business relationships that exist between the Com- pany and its many loyal customers. In 1963, the LARK cigarette, our newest brand with the unique 3-piece Keith filter, was introduced in world markets. Its initial acceptance has been most encouraging, and indications are that the de- mand for LARK will continue to increase. L & M filters manufactured for us by the firm Ed. Laurens, one of the leading Swiss cigarette manu- facturers, continue to have favorable acceptance in the Swiss market. We consider our first manufac- 8 turing venture overseas to be a successful one and are studying the desirability of expanding in other markets. Leaf Tobacco Purchases of choice-quality flue-cured, burley, Maryland, and Turkish tobaccos were made during 1963 to provide for the Company's requirements of leaf. At the end of 1963, the total value of leaf inven- tory was $281,943,344. Domestic leaf purchases are made through the Company's own experienced buyers who participate in virtually all of the auction sales where cigarette tobaccos are sold. Turkish tobacco is purchased through a wholly-owned subsidiary, the Gary Tobacco Company. The 1963 flue-cured tobacco crop totaled approxi- mately 1,459 million pounds and sold at an average market price of 57.7 cents per pound, as compared with a total of 1,508 million pounds at 59.8 cents per pound for the 1962 crop. As is customary, sales of the burley crop were not completed by the end of the year. However, it is esti- mated that total volume is approximately 750 mil- lion pounds, as compared with 703 million pounds for the 1962 crop. Market prices of this crop aver- aged 59.7 cents per pound through the end of the year, as compared with a price of 60.8 cents per pound a year earlier. TIMN 446097

Net Worth Compared With Long-Term Debt N Net Worth flions 0 Long-Term Debt 300 ?00 100 millions 70 - 60 50 40 30 20 10 Taxes ~ Federal and State Income and Franchise Taxes Net Income After Taxes or finance companies. Cash and short-term invest- ments, including U.S. Government tax notes, at the end of the year amounted to $26,835,454, compared with $17,857,319 at the end of 1962. The principal amount of the 25/s per cent deben- tures outstanding was reduced by $5,750,000 in 1963 through operation of the Sinking Funds. This reduc- tion, together with the addition of $3,616,600 to stockholders' equity, further improved the ratio of funded debt to stockholders' equity. Funded debt at December 31, 1963, amounted to $61,250,000, com- pared to $67,000,000 for the previous year. The ratio of current assets to current liabilities at the end of 1963 was 12.6 to 1, as compared to a ratio of 12.1 to 1 in 1962. The Company reacquired 2,190 shares of noncall- able 7 per cent preferred stock during 1963, bringing the total number of preferred shares held in the treasury at December 31, 1963, to 62,850. Taxes Federal and state income taxes and franchise taxes amounted to $26,928,000, or $6.81 per share. For comparison, net earnings per share on the com- mon stock amounted to $5.96. Federal and other excise taxes amounted to $213,- 046,000. The federal excise tax alone amounts to eight cents for each package of cigarettes. Although the Company does not collect state and local tobacco taxes, they represent a substantial levy on the sales of its products, resulting in higher prices to the consumer. Forty-seven states have a tax on cigarettes; during 1963 several of them in- creased the rates to as high as the federal excise rate of eight cents per pack. Capital Expenditures Principal capital expenditures during 1963 were for purchases of machinery and equipment to mod- ernize and improve the efficiency of the Company's manufacturing and leaf tobacco operations. In 1963, these expenditures aggregated $3,500,000, compared with $2,200,000 in 1962. Depreciation charges to costs and expenses amounted to $4,253,247 during 1963 as against $4,081,438 in 1962. No major ex- penditures for capital improvements are anticipated for the near future. Manufacturing The Manufacturing Department had an active year. In addition to the installation of a number of new cigarette-making machines and new production systems, the manufacture of LARK cigarettes, with the 3-piece Keith filter, began. Since the 3-piece Keith filter contains activated and fortified charcoal granules in a chamber between two modern outer filters. it was necessary to design and build intricate 7 TIMN 446096