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Liggett & Myers Tobacco Company Highlights o f Operations Net sales . . . . . . . . . . . . . . . Earnings before taxes . . . . . . . . . . Income and franchise taxes . . . . . . . Earnings before preferred dividends . . . Net earnings after preferred dividends .. Percentage of net sales . . . . . . . . . Net earnings per share of common stock .. Dividends per share of common stock ... Current assets . . . . . . . . . . . . . Current liabilities . . . . . . . . . . . Ratio ................. Funded debt . . . . . . . . . . . . . CapOal stock . . . . . . . . . . . . . AcYcTitional paid-in capital . . . . . . . . Retained earnings . . . . . . . . . . . 1962 $499,955,681 53,700,830 28,290,000 25,410,830 24,247,598 4.85% $6.14 $5.00 $365,870,330 30,315,244 12.1 to 1 67,000,000 115,232,175 21,070,828 166,460,589 1961 $516,708,042 58,624,120 31,864,000 26,760,120 25,555,028 4.95°Jo $6.47 $5.00 $367,929,332 33,008,967 11.1 to 1 72,750,000 115,684,050 20,987,493 162,215,224 Approximate number of stockholders . . . I 50,000 I 50,000 TIMN 446111 f!

Our manufacturing operations have continued to provide the Company with its traditionally fine quality products. In 1962, considerable emphasis was placed on new manufactur- ing and quality control systems, some of which have already been placed into operation. Although present facilities are equipped with the most modern machinery, the future needs of the Company are being continually studied and provided for. The Company is justifiably proud of the effort and cooperation of its manufacturing personnel in maintaining the highest standards of quality for its products. Export Sales The export sales of the Company's products, principally its cigarette brands, continue to make an important contribution to the Company's over-all business. The many fine customers to whom we ship our products throughout the world have contributed much to this success. Notwithstanding the com- petition in the cigarette export markets of the world, our Company looks forward with confidence to a growing export business. The year 1962 marks the first venture that we have made in manufacturing one of our principal brands of cigarettes outside of the United States. On January 1, 1963, L & M filters went on sale in Switzerland, manufactured in Geneva by the firm Ed. Laurens, one of the leading Swiss cigarette manufacturers. Swiss manufactured L & ll•1 filters will be exactly the same cigarette as the American made brand. Leaf Tobacco From both the flue-cured and burley crops the Company purchased various grades of choice quality tobaccos to insure proper inventories for all of its products. Stocks of Maryland and Turkish tobaccos were also acquired during the year, sufficient to take care of the Company's requirements. At the end of 1962 the value of our leaf tobacco stock was $300,- 430,512. The crop of flue-cured tobacco last year totaled approxi- mately 1,505 million pounds. The average market price was zch automatic packaging machine oduces over one million cigarettes !r day in packs of twenty. TIMN 446120 11

I February 1, 1963 To the Stockholders: For another year the U. S. tobacco industry has shown that it is both stable and vital, registering a further increase in cigarette sales of approximately 1 0. The important contribution of the tobacco industry to the total economy of the country can be quickly gauged by a few facts - more than $3,100,000,000 paid in federal, state and municipal excise taxes; 700,000 farm families engaged in growing tobacco, with an income from their tobacco sales of $1,350,000,000; several million people engaged in the manufacture and distribution of tobacco products for which the public spent during the year approximately $7,800,000,000. - While the sales and earnings of the Company for the year show a small decline, there is in the overall sales picture ground for encouragement. The national trend to filter cigarettes continues to grow and the Company's L&M_filter brand has had an excellent increase during the year, appre- ciably in excess of the percentage increase for the industry. Our non-filter brands, CHESTER- FIELD principally, showed no improvement, which is characteristic of the national trend for this type cigarette. On the other hand, we believe that this brand at the present time has more solid sales potential, supported by stronger advertising and marketing programs, than it has had for some time. Extensive research work has been engaged in during the year including the development of possible new brands, distinctive in quality and taste. Progress has been made in this direction. As of January 1, 1963, L & M filter cigarettes are being manufactured and sold in Switzerland by the well-established firm of S. A. Ed. Laurens-"Le Khedive:' We believe this arrangement, the first of its kind undertaken by the Company for one of its principal brands, will be successful and will further strengthen our position in the European market. While consideration has been given by the Company to several propositions to engage in other lines of business, nothing specific is being considered at the present time. The finances of the Company remain strong. For the fourth successive year there were no short term borrowings at the year end. Along with the other members of the industry, the Company is cooperating with the Advisory Committee on Smoking and Health appointed by the U. S. Surgeon General. This committee is expected to make its report some time later in the year. Considerable attention has been given to strengthening the Company's organization and improv- ing its all-round efficiency. The employees of the Company have been loyal and industrious, and are to be commended on their work. We express appreciation to the stockholders for their continued interest and support, and assure them of the best efforts of the Management to increase the value of their investment in the Company. Respectfully submitted on behalf of the Directors, WILLIAM A. BLOUNT ZACH TOMS Chairman o f the Board President TIMN 446112 3

Directors J. BOWLING ANDERSON C. GRICE MC MULLAN WILLIAM A. BLOUNT LAWRENCE W. BRUFF JONATHAN W. OLD, JR. Executive Personnel ZACH TOMS FREDERICK R. DARgIS EDWARD J. PARRISH Liggett & Myers Tobacco Company Executive Officea: 630 Fifth Avenue, New York 20, N. Y. MILTON E. HARRINGTON FREDERICK SHEFFIELD On May 1, 1962, J. Camden Hundley, Director and General Manager of the Durham Branch, retired in accordance with the Company's Retirement Plan. Milton E. Harrington, Vice President, Leaf Tobacco, was named Chief Executive Officer of Company operations in Durham, North Carolina. Edward J. Parrish, Director, Export Sales, was elected a Vice Presi- dent on March 28, 1962. On May 16, 1962, Jonathan NV. Old, Jr., Assistant to the Vice Presi- dent, Manufacturing, was elected to the Board of Directors. FRANCIS H. HORAN LOY D. THOMPSON TIMN 446113 I

59.8~ per pound, about 6% below the 1961 level of 63.70 per pound. The Government price support level for the 1962 crop was 56.1~ per pound. Production of burley tobacco in 1962 is estimated at approximately 685 million pounds. Prices on the auction market through the end of the year averaged 60.40, per pound compared with 66.80 in the corresponding period of 1961. The Government price support level for the 1962 crop was 57.8~ per pound. Research The physical facilities of the Research Department were doubled two years ago. Since that time personnel trained in science and engineering have been added to the staff as fast as qualified people could be obtained. At present the staff is better able to cope with the ever increasing number of technical problems that are arising that pertain to the opera- tion of the Company and the manufacture of quality tobacco products. Emphasis is being directed to the study of the manufactur- ing operations to make these more efficient, more economical, and more applicable to the needs of our industry. We recog- nize that the use of tobacco is under severe attack and we have stepped up our emphasis on problems related to the alleged hazards of the use of tobacco by man. We are expand- ing our knowledge of the composition of tobacco, tobacco smoke, and the combustion of tobacco in the form of ciga- rettes. This knowledge will strengthen the ability of the Company to manufacture better tobacco products that are acceptable to the consuming public. Advertising and Marketing Pictured on the opposite page are recent magazine adver- tisements for L & M and CHESTERFIELD KING. Consumers have responded favorably to the L & M adver- tising promise - "When a cigarette means a lot, you get Lots More from L & M," and have found the product to their liking. The advertising for CHESTERFIELD and CHESTERFIELD KING emphasizes the good taste of fine tobaccos - "CHESTERFIELD 12 TIMN 446121

_iggett & Myers Tobacco Company 1962 Annual Report over ic Company's three most popular brands: r1f KING (also acailable in Box and Regular), IESTERFIELD KING id CHESTERFIELD Regular. pposite •ight or Virginia-type tobaccos, eo called flue-cured because of e method of curing, are tied hands and placed on sticks for hanging the curing barn, tchere green Ieaf ,ns to a bright golden color. Contents page 2 Highlights of Operations 3 Letter to Stockholders 4 Officers and Directors 7 Sales, Earnings and Dividend Record 8 Financial Condition, Tases and Capital Expenditures 9 Manufacturing 11 Export Sales and Leaf Tobacco 12 Research and Advertising and Marketing 1-1 Disposition of Total Earnings 15 Opinion of Certified Public Accountants 16 Consolidated Balance Sheet 18 Consolidated Earnings 19 Consolidated Retained Earnings and Notes to Financial Statements 20 Ten Years in Review Stockholders' Annual Meeting The Annual Meeting of Stockholders will be held on Tuesdav, March 26, 1963 at Hotel Plaza, journal Square, Jersey City. New Jersey, at 2:30 EM. Formal notice of this meeting, together with the proxy and proxy statement, will be mailed to stockholders on Februarv 21, 196:3 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 repre- sented as fully as possible at the meeting. Today the Company is owned by approxi- mately 50,000 stockholders. About 81",, of the total Common and Preferred stock was voted by person or proxy at the lust annual stockholders' meeting on March 27, 1962. TIMN 446110

There are presented herewith the results of the operations of your Company for the year ended December 31, 1962, together with comments on some of the Company's more important activities. Sales Net sales in 1962 were $499,955,681 compared to $516,- 708,042 in the previous year, representing a decline of about 3 per cent. Again in 1962 filter-tip and king size cigarettes attained larger shares of the cigarette market, while regular size accounted for a smaller share. In keeping with this trend, unit sales of the Company's regular size cigarettes declined, while its principal filter-tip brand, L & M, continued to show a good increase. Earnings Net earnings were slightly lower than in the previous year, amounting to $25,410,830 compared with $26,760,120 for 1961. Net earnings per- common share based on 3,951,363 shares outstanding at the end of the year amounted to $6.14 in 1962 compared with $6.47 in the previous year. Reflected in this decline is a non-recurring expense of 5~ per share due to the sale of foreign currency deposits during the year. Dividend Record 1962 marked the 51st consecutive year in which common dividends were paid by your Company. Total payments in 1962 amounted to $5.00 per share, con- sisting of four quarterly dividends of $1.25 each. Four quarterly dividends of $1.75 per share were also paid on the preferred stock. At the end of the year, there were approxi- mately 50,000 stockholders sharing the dividends. Total dividends paid in 1962 on both common and pre- ferred stock amounted to $20,918,278. The balance of the year's earnings amounting to $4,492,552 was retained for use in the business. This compared with $5,842,567 retained in 1961. - On January 16, 1963, a regular dividend of $1.25 per common share was declared, to be paid on March 1, 1963, to stockholders of record February 15, 1963. Bundles of Bright tobacco are placed in large baskets on the tobacco auction warehouse floor, where it is sold to the highest bidder at the rapid pace o f 400 baskets every hour. Liggett & Myers Tobacco Company Operations 1962 Net Sales Net Earnings '56 '57 '58 '59 '60 '61 '62 300 200 100 TIMN 446116 7

Officers WILLL4M A. BLOUNT Chairman of the Board and Chief Executive Officer ZACH ToMs President and Chairman o f Executive Committee J. BOVVLING ANDERSON Vice President and Treasurer LAwRENCE W BRUFF Vice President, Advertising FREDERICg R. DARKis Vice President and Director of Research MILTON E. HARRINGTON Vice President, Leaf FRANCIS H. HORAN Vice President and General Counsel GRAYDON B. LEAxE Vice President, Sales EDWARD J. PARRISH Vice President, Export Sales LoY D. THOMPSON Vice President, Manufacturing SAMUEL WI-HTE Vice President, Marketing RussELL M. CHENOWETH Secretary RALPH P MOORE Assistant Treasurer RuSSELL G. CuTTER Auditor R. HAYWOOD HOSEA Assistant Secretary CHARLES B. MORGENTHALER Assistant Secretary DONALD G. NYREEN Assistant Secretary Directors Transfer Agent: R.yistrar: J. BOWLING ANDERSON WILLIAM A. BLOUNT LAWRENCE W BRUFF FREDERICK R. DARKIs MILTON E. HARRINGTON FRANCIS H. HoRAN GRAYDON B. LEAgE C. GRIcE MCMULLAN JONATHAN W. OLD, JR. EDWARD J. PARRISH FREDERICK SHEFFIELD LOY D. THOMPSON ZACH ToMs SAMUEL WHITE Chemical Bank New York Trust Co., 20 Pine Street, New York 15, N. x First National City Bank 55 Wall Street, New York 15, N. Y. 1 TIMN 446114 5

Liggett & Myers Tobacco Company Annual Report TIMN 446131

Assets 1 1962 1 1961 CURRENT ASSETS: Cash (including negotiable time certificates of deposit: 1962, $7,000,000; 1961, $5,000,000) . . Accounts receivable, customers . . . . . . . . . Accounts receivable, others . . . . . . . . . . . Leaf tobacco, at average cost . . . . . . . . . . Manufactured stock and operating supplies, at average cost . . . . . . . . . . . . . . . TOTAL CURRENT ASSETS . . . . . . . . . . $ 17,857,319 20,470,367 1,035,105 300,430,512 26,077,027 365,870,330 $ 13,923,707 21,708,701 1,152,322 298,454,565 32,690,037 367,929,332 PROPERTY, PLANT AND EQUIPMENT - AT COST: Land and buildings . . . . . . . . . . . . . . Machinery and equipment . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . Less accumulated depreciation . . . . . . NET PRoPERTY, PLANT AND EQUIPMENT .. OTxER Ass=: BraQs, trade-marks and good will . . . . . . . Investments in unconsolidated subsidiary companies, at equity in net assets .. ..... Investment in foreign tobacco company, at cost .. Foreign currency deposits subject to withdrawal restrictions . . . . . . . . . . , , , , , Prepaid expenses and deferred charges ...... TOTAL OTEiER ASSETS . . . . , , , , , , TOTAL . . . . . . . . . . . . . . . 20,764,041 60,559,383 81,323,424 49,575,228 31,748,196 1 1,650,973 4,000 1,052,142 2,707,116 $400,325,642 20,722,849 59,214,150 79,936,999 46,799,429 33,137,570 1 1,631,396 4,000 946,731 1,253,644 3,835,772 $404,902,674 TIMN 446125