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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

Special marketing programs have been developed and employed to promote sales with several different and impor- tant segments of the trade, including a national college pro- gram, a supermarket merchandising program and others. All of these special programs are supported with appropriate advertising and with extra promotion effort by the Sales Department. In addition, distribution in vending machines has been given special attention resulting in improved sales through these outlets. Disposition of Total Earnings for 1962 The Company received for goods sold to customers and from dividends and interest a total of $501,230,000. This is how it was used or set aside. t-~ 42.3% Federal and other excise taxes 4 $212,209,000 34.2% iloaf tobaoco, "ges, other manufacturing-casts_and freight S171,643,000" ~-- 12.7% Selling, advertising, administrative, interest and other expenses $63,677,000 5.7% Federal and State Income and franchise taxes $28,290,000 \ 4.2% Dividends $20,918,000 14 TIMN 446123

KING tastes great because the tobaccos are." In the latter part of 1962, the CHESTERFIELD KING carton was attractively rede- signed to emphasize "KING" and to distinguish it from the regular CHESTERFIELD carton. In addition to national magazines, all other major media are used to convey sales messages to the consumers' atten- tion, including newspapers, Sunday supplements, network and spot television, radio, outdoor billboards and transporta- tion posters. Through the efforts of our Sales Department, point-of-sale posters, signs and displays are placed at im- portant outlets where cigarettes are sold. In television the Company's brands are represented in pro- grams designed to reach all types of adult viewers. Included are highly successful dramatic shows such as "Dr. Kildare" and "The Virginian"; musical variety, "The Andy tiVilliams Show" and Johnny Carson's "Tonight"; comedy, "Ensign O'Toole"; and three special features which have received wide press acclaim, "The River Nile," "Shakespeare: Soul of an Age," and "The Polaris Submarine." ~ more body in the blend mote f!awr in the smoke ~-~ more teste chrough the filter 4'. We rtri-E.rer IeJ W.t dep itl L3M hu more neY.e..or kJ W.n e.en wme ue6ltueJ ci6.rtttnAM LbM1 Ntnl. tke..den /Hx -.ff vMU-inride.od w.ude-w ady pun vhi.. wushn yew 4p. LlYY uLN~rn6./^cPwW vAe.eapY Gt. a.mol.. 2! Crat To6ume ®ake 20 Wonderfnl 5®u!cn! CFEST£AFIFl.D KING wio.rn...moYe. _M. Ynu... n rm~... wW<.>.~e.n mM....d mJd .d MwdM m~W. T..tn vca...ek<..ild.., kcc.... Ik, l.k........1 TIMN 446122 13

Liggett & Myers Tobacco Company flance Sheet as of December 31 abilities CURRENT LIABILITIES: Accounts payable . . . . . . . . . . . . . Dividend payable on preferred stock ...... Accrued interest on debentures . . . . . . . . . Funded debt payable within one year ...... Taxes payable and accrued . . . . . . . . . . . TOTAL CURIiENT LIABILITIES . . . . . . . FUNDED DEBT: 25/ °Jo Sinking Fund Debentures, $5,750,000 pay- able in 1964, $23,750,000 payable in 1965, and $37,500,000 payable in 1966. . . . . . . . . . RESERVE: For deferred contingent compensation (net of esti- mated future income tax reductious )..... STOCSHOLDERS'EQUITY: Preferred stock 7% cumulative, par value $100 - authorized, 341,398 shares; issued, 225,141 shares; in treasury, 196i. M ,660 shares, and 1961, 55,660 shares ~_,,. . Common stock, par~,lue $25-authorized, 5,000,000 shares; issued, 1962, 3,951,363 shares, and 1961, 3,949,438 shares (Note 1) . . . . . . . . . . Paid-in capital in excess of par values of capital stocks (Note 2 ) . . . . . . . . . . . . . . . . . . Retained earnings (Note 3) . . . . . . . . . . . TOTAL STocKHoLDERS' EQUITY . . . . . . . TOTAL . . . . . . . . . . . . . . . 1962 $ 2,022,378 288,192 582,422 5,750,000 21,672,252 30,315,244 67,000,000 246,806 . 16,448,100 98,784,075 21,070,828 166,460,589 302,763,592 $400,325,642 1961 $ 5,340,328 297,817 628,906 5,750,000 20,991,916 33,008,967 72,750,000 256,940 16,948,100 98,735,950 20,987,493 162,215,224 298,886,767 $404,902,674 17 TIMN 446126 T

Liggett & Myers Tobacco Company Statement of Consolidated Earnings (for years ended December 31) NET SALES . . . . . . . . . . . . . . . . . . . . 1962 $499,955,681 1961 $516,708,042 OTHER EARNINGS: Interest and dividends received . . . . . . . . Equity in net earnings of unconsolidated subsidiary companies . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . 801,644 220,828 251,449 846,920 169,587 TOTAL EARNINGS . . . . . . . . . . . . COSTS AND EXPENSES: Cost of goods sold, selling, administrative and general expenses . . . . . . . . . . . . Provision for depreciation . . . . . . . . . . . Interest and amortization on funded debt .... Loss on conversion of foreign currency deposits . Other . . . . . . . . . . . . . . . . . . . . Provision for Federal income tax. . . . . . . . Provision for State income and franchise taxes .. TOTAL COSTS AND EXPENSES . . . . . . . NET EARNINGS FOR THE YEAR. . . . . . . . . . . . DIVIDENDS ON PREFERRED STOCK. . . . . . . . . . . NET EARNINGS APPLICABLE TO COLf\foN STOCZ . 501,229,602 440,964,796 4,081,438 2,034,941 427,049 20,548 25,948,000 2,342,000 475,818,772 25,410,830 1,163,232 $ 24,247,598 517,724,549 452,867,835 3,977,215 2,188,223 67,156 28,703,000 3,161,000 490,964,429 26,760,120 1,205,092 $ 25,555,028 I$ TIMN 446127 `

Financial Condition Net Worth Compared With Long-Term Debt Net North '56 '57 '58 59 '60 '61 '62 Taxes Federai and State Income tnd Franchise iaxes .. Net Income After Taxes ~ 40 '56 '57 '58 59 0 '61 '62 For the fourth successive year there vvere no short-term borrowings at the year end. The surplus cash available during the vear was invested in Treasury Bills and negotiable time certificates of deposit. Cash on hand at the end of the year, including negotiable time certificates of deposit, amounted to S1 7,S57 319, as compared to 813,923,707, a year earlier. The principal amount of the 2>:~"~ debentures outstanding was reduced by $5, 750,000 in 1962 through operation of the Sinking Funds. This reduction, together with the addition of S3,S76,S?5 to net Nvorth, further improved the ratio of funded debt to net «•orth. Funded debt at December K. 1962 amounted to $67,000,000 which reflects a reduction of S-1S,000,000 compared with 1953 when such debt amounted to $115,000,000. The ratio of current assets to current liabilities at end of year 1962 was 12.1 to 1«•hich was a further improvement as compared to a ratio of 11.1 to 1 in 1961. The Company reacquired 5,000 shares of non-callable i '(, Preferred Stock during the year. There was held in the treasury a total of 60,660 shares as of December 31, 1962. Taxes Federal and State inconne taxes and franchise taxes amounted to 5?5,290,000 in 1962 compared with S31•S6-l,t)0() in 1961. Despite the decrease in taxes, it is to be iwtecl tliat the amount paid was about 11'(, larger than net incoine' uml amounted to S i.16 per share compared «-ith net earniw_,, f tt $6.14 per share. The Company's tax bill for 1962 for Federal and c)tlicr excise taxes amounted to $?L,?09,0? i. Examination of the Company's Federal income tax rc tt-I ri I , by the Internal Revenue Service has been completecl if tr ill years through 1959. Capital Expenditures Priiwit).il capital expenditures during 1962 were f+)r pir- cha',t', t1 ftt,t(liiiiery and equipment for improvemeiit itt dtt., efficif'nt % rl It.tffdling and processing leaf tobacco as «t'il as 8 TIMN 446117

for quality controls in manufacture. These expenditures in 1962 totaled S?,?00,000 compared Nvith 81,700,000 in 1961. Depreciation charbes to costs and expenses amounted to 5-1,081,438 during 1962 as against $3,9; 7,? 15 in 1961. While no major expenditures for capital improvements are antici- pated for the near future, the Company will continue to use funds for modernization of its operations. Manufacturing The Company's cigarette factories are located in Durham, N. C. and Richmond, Va. The many complimentary remarks and letters from the thousands Nvho visit these nioclern fac- tories each year attest to their efficiency and cleanliness. Pipe and plug tobacco brands are manufactured in St. Louis, '\Io. Five leaf processing plants are strategically located through- out the tobacco growing, areas in Dtu-ham and Rocky- NIount, N. C., Danville, Va. and Lexington and Paris, hy. 1,000 pound hogsheads of muny types o f a~ed lea f tobaccos are selected to a precise formula, assembled and fed by these automatic feeder units to the blending line.

Liggett & Myers Tobacco Company Ten Years in Review (Dollars expressed in thousands except per share figures) Operating Results learEndedDecember31 ear Earnings Net Before Sales Taxes Taxes on Income Net Earnings Per Share of Common Common Stock (a) Dividends S Per hare (a) Preferred Dividends ($7 Per Earnings Share) Retained Sinking Fund Require- ments 1962 $499,956 $53,701 $28,290 $25,411 $6.14 $19,755 j $ 5.00 ~ $1,163 $4,493 $5,750 1961 516,708 58,624 ' 31,864 26,760 6.47 19,712 i 5.00 i 1,205 5,843 5,750 1960 543,173 62,713 34,004 28,709 6.96 19,686 1 5.00 1,301 7,722 5,750 1959 554,936 65,075 35,036 30,039 7.28 22,585 ' 5.75 (b) 1,430 6,024 5,750 1958 556,046 67,912 36,689 31,223 7.60 19,571 ; 5.00 1,461 10,191 5,750 1957 570,385 61,895 33,621 28,274 6.85 19,564 i 5.00 1,461 7,249 5,750 1956 564,966 58,367 ' 31,916 26,451 ; 6.39 19,561 5.00 1,461 5,429 5,750 1955 546,965 56,678 29,957 26,721 6.46 15,646 4.00 i 1,461 9,614 2,000 1954 548,862 47,835 25,634 . 22,201 5.30 19,558 5.00 1,461 1,182 1953 586,499 51,964 28,985 I 22,979 1 5.50 19,558 ~ 5.00 1,461 1,960 Financial Position (yearEnd) p. Plant and Book Value Per Current Working Equipment Total Funded Short-Term Stockholders' Common Year Inventories Assets Capital (Net) Assets Debt Debt (c) Equity Share (a) 1962 $326,508 ~ $365,870 i $335,555 $31,748 . $400,326 ' $67,000 $ 5,750 $302,764 $72.46 1961 331,145 ! 367,929 j 334,920 33,138 404,903 72,750 5,750 298,887 71.39 1960 314,413 i 354,846 333,383 35,122 393,080 ~ 78,500 5,750 292,868 69.83 1959 330,394 365,064 332,157 36,201 ' 404,391 ~ 84,250 5,750 287,234 68.08 1958 341,318 369,974 333,054 35,582 409,103 90,000 7,456 282 182 66 70 1957 381,029 416,458 i 327,417 36,215 456,440 95,750 59,060 , . k 271,649 64.09 1956 409 071 693 ~ 444 328 922 667 33 481 671 101 500 83 75 1955 , 389,014 1 , 425,252 , 332,798 , 30,634 , 458,592 , 107,250 , 0 57,750 264,400 62.24 258,888 60.85 I 1954 423,439 i 459,146 330,112 28,692 491,309 113,000 97,220 249,275 58.39 1953 431,342 i 467,549 j 333,412 26,789 497,229 115,000 99,000 248,092 58.09 (a) Based on number of shares outstanding at end of each year. (b) Commencing June 1, 1959 regular quarterly dividends o f$1. °5 per share have been paid. (c) Includes notes payable to banks and funded debt payable within one year. 20 TIMN 446129

Liggett & Myers Tobacco Company Statement of Consolidated Retained Earnings (f or years ended December 31) BALANCE AT BEGINNING OF YEAR . . . . . . . . . . ADD: Net earnings for the year . . . . . . . . . . . Equity in undistributed earnings of unconsolidated subsidiaries to January 1, 1961 . 1962 $162,215,224 25,410,830 1961 $156,071,334 26,760,120 718,805 TOTAL . . . . . . . . . . . . . . . . . DEDUcr: Cash dividends of $7 per share on preferred stock Cash dividends of $5 per share on common stock Total dividends . . . . . . . . . . . . . . Excess of cost over par value of preferred stock reacquired . . . . . . . . . . . . . . . . . TOTAL . . . . . . . . . . . . . . . . . BAr AivcaE AT Errp OF YEAa (Note 3) . . . . . . . . . 187,626,054 1,163,232 19,755,046 20,918,278 247,187 21,165,465 $166,460,589 Notes to Financial Statements DBcemb&r3z,19sa 1. At January 1, 1962 there-.Were outstanding options granted under the Incentive*jp_4 Option Plan to officers and key employees to purchase, subject to certain limita- tions, 36,283 shares of the Company's common stock. During 1962, options for 1,925 shares were exercised for an aggregate option price of $131,460 and options for 700 shares were cancelled. At December 31, 1962, options were outstanding with respect to 33,658 shares having an aggregate option price of $2,529,060. In accordance with the Plan, option prices represent clos- ing quoted market values of the shares on the dates the options were granted. 2. Paid-in capital in excess of par values of capital stocks increased in 1962 by $83,335, representing the excess of sales price over par value of common 183,550,259 1,205,092 19,712,461 20,917,553 417,482 21,335,035 $162,215,224 stock sold to officers and employees under the Incentive Stock Option Plan. 3. Under the terms of the Indenture covering the 2g/s% Sinking Fund Debentures, $65,527,318 of retained earnings is restricted as to payment of cash dividends on common stock. This limitation does not apply to stock dividends on common stock, nor does it restrict payment of dividends on preferred stock. 4. The Company's investment credit, which resulted in a reduction of its Federal income tax liability in ac- cordance with the Revenue Act of 1962, amounted to $149,000 for 1962. Amounts equal to the investment credit are included in provision for depreciation in the statement of consolidated earnings and in accumulated depreciation in the consolidated balance sheet. TIMN 446128 19

We have examined the consolidated balance sheet of Liggett ~Myers Tobacco Company and its wholly-owned consolidated subsidiarv as of December 31, 1962 and the related statements of consolidated earnings and retained earnings for the year then ended. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the accompanying consolidated balance sheet and statements of consolidated earnings and retained earnings present fairly the financial position of the companies at December 31, 1962 and the results of their operations for the year then ended, in con- formity with generally accepted accounting principles applied on a basis consistent with that of the preceding year.

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