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3 Liggett & Myers Tobacco Company Highlights of Operations 1961 1960 Net S ales . . . . . . . . . . . . . . . Earnings before taxes . . . . . . . . . . Income and franchise taxes . . . . . . . Earnings before preferred dividends . . . Net earnings after preferred dividends .. $516,708,042 58,624,120 31,864,000 26,760,120 25,555,028 $543,172,587 62,712,895 34,004,000 28,708,895 27,407,640 Percentage of net sales . . . . . . . . . Net earnings per share of common stock .. Dividends per share of common stock ... 4.95% $6.47 $5.00 5.05% $6.96 $5.00 Current assets . . . . . . . . . . . . . $367,929,332 $354,845,972 Current liabilities . . . . . . . . . . . 33,008,967 21,463,405 Ratio . . . . . . . . . . . . . . . . . 11.1 to 1 16.5 to 1 Funded debt . . . . . . . . . . . . . 72,750,000 78,500,000 Capftall stock . . . . . . . . . . . . . 115,684,050 116,262,425 AdclitFonal paid-in capital . . . . . . , . 20,987,493 20,534,676 Retained earnings . . . . . . . . , , , 162,215,224 156,071,334 Approximate number of stockholders . . . 50,000 48,200 R 44 2 TIMN 446138

~.ontents page 2 3 Highlights of Operations Letter to Stockholders 4 Officers and Directors 6 Sales, Earnings and Dividend Record 7 Financial Condition and Taxes 9 Capital Expenditures, 10 Manufacturing and Export Leaf Tobacco and Research 12 Disposition of Total Earnings 13 Opinion of Certified Public Accountants 14 Consolidated Balance Sheet 16 Consolidated Earnings 17 Consolidated Retained Earnings and 18 Notes to Financial Statements Ten Years in Review 20 Advertising and Sales Promotion l~~6l Annual Repo~t Liggett & Myers Tobacco Company pposite Jhen Bright tobacco is f ully matured, ze leaves are pulled individually and re then flue-cured to a bright gold efore they go to auction. over right or Virginia-type tobacco, re important ingredient in the popular lended cigarettes, is grown in the arolinas, Virginia, Georgia and Florida. Stockholders' Annual Meeting The Annual Meeting of Stockholders will be held on Tuesday, March 27, 1962 at Hotel Plaza, Journal Square, Jersey City, New Jersey, at 2:30 P.M. Formal notice of this meeting, to- gether with the proxy and proxy state- ment, will be mailed to stockholders on February 23, 1962. Those of you who are unable to attend the meeting are urged to sign your proxies and re- turn them promptly to the Company so that the stock of the Company will be represented as fully as possible at the meeting. Today your Company is owned by approximately 50,000 stockholders. About 83% of the total Common and Preferred stock was voted by person or proxy at the last annual stock- holders' meeting on March 28, 1961. TIMN 446137

February 2, 1962 To the Stockholders: The 1961 Annual Report describes the Company's operations together with audited financial statements for the year 1961 and comparative figures for 1960. This year, which marked the 50th Anniversary of the organization of the Company, has been spent by the Management in a complete overhauling of sales methods and a rearrangement of advertising and marketing responsibilities, all aimed at increasing the Company's share of the total market. Extensive marketing research has been employed to gain public preference information on which to base decisions. Management operations have been meshed more closely together with diligent cooperation on the part of all employees. The most significant step taken was the transfer about mid-year of all the advertising accounts of the Company to one agency, J. Walter Thompson Company. After a most thorough study it was concluded that this agency has the experience and facilities for successfully advertising the Company's products on the television screens of the nation, on radio, in publications and all other media. This agency is well qualified to give expert assistance in marketing operations. Much concerned at having to report a small decrease in sales and a consequent drop of 7% in earnings, we believe that the strengthened methods adopted recently will in the coming months direct the sales curve upward. The principal factor involved today is the multiplicity of brands being offered to consumers. Whereas ten years ago there were only four or five brands of ciga- rettes that had any appreciable volume, there are today approximately 20 brands or variations with substantial sales. The effect of this has been most noticeable in the large cities where CHESTER- FIELD used to be dominant. During the trend toward filter cigarettes, which we think is steady- ing, the city markets proved to be very volatile. All the "regular" cigarettes suffered badly. Nor has the switching about of consumers ended. Recently a significant number have been smoking menthol type cigarettes, a field in which we are trying strongly to establish ourselves. We are especially encouraged by the sound position occupied by the industry as a whole. In spite of repetitive attacks from some sources blaming tobacco for most of the ills of mankind, the business has shown a steady tendency toward growth. We mean to share in this growth and believe that with our experience and energy we will. During the year a vacancy on the Board of Directors was filled by the election of a Director not in the employee group. With changing times and changing problems we believe that our Board can now be strengthened by enlisting from time to time the services of "outside Directors" with experience and established reputation. On behalf of the Board of Directors, we wish to express our appreciation to our shareowners, customers and the employees of the Company for their loyal support and cooperation throughout the past year. WILLIAM A. BLOVNT ' ZACH TOMS Chairman of the Board President TIMN 446139 3

Liggett & Myers Tobacco Company Executive Offices: 630 Fifth Avenue, New York 20, N. Y. Directors J. BOWLING ANDERSON CRAYDON B. LEABE WILLIAM A. BLOUNT LAWRENCE W. RRUFF C. GRICE A1C DfULLAN Executive Personnel ZACH TOMS FREDERICK R. DARKIS EDWARD J. PARRISH On Apri130, 1961, William B. Lewis, Jr., Vice President, Sales, retired in accordance with the Company's Retirement Plan. On August 16, 1961, «'illiam A. Blount was elected Chairman of the Board of Directors and Zach Toms was elected 1're,ident. Elected to the Board of Directors to succe•v,I \ir. Lewis was Frederick Sheffield..I tie•nior t'.Irtner in the law firm of Webster, Stu•tfieId. Flrt.chlllann, Hitchcock and Chrystie. Also t•It~utv<1 on this MILTON E. HARRINCTON FREDERICK SHEFFIELD FRANCIS H. HORAN date was J. Bowling Anderson, Vice President, Finance, to succeed William L. Perry who retired August 31, 1961 in accordance with the Company's Retirement Plan. Elected Vice Presidents on August 30, 1961, effective September 1, 1961, were Lawrence W. Bruff, Advertising, Graydon B. Leake, Sales c and Samuel White, Marketing. Mr. White was also elected to the Board of Directors on this date. 4 TIMN 446140

ni//ions 300 200 100 Taxes 40 30 20 10 Net Worth Compared With Long-Term Debt ,M Net Worth '55 '56 '57 '58 '59 0 '61 Federal and State Income and Franchise Taxes ~ Net Income After Taxes Financtai Condition The Company's over-all financial position continued to grow stronger in 1961. For the third successive year there were no short-term borrowings at the year end. The surplus cash available during the year was invested in negotiable time certificates of deposit because of high yields. Cash on hand at the end of the year, including negotiable time certifi- cates of deposit, amounted to $13,923,707 as compared to $11,059,994 a year earlier. Long-term debt was reduced by $5,750,000 in 1961 as a result of retirement of debentures through operation of the Sinking Funds. This reduction, together_ with the addition of $6,018,332 to net worth, further improved the ratio of funded debt to net worth. The funded debt was only 24.39 of net worth at the end of 1961, as compared with 41.4% six years ago. An over-all reduction of $42,250,000 in such debt from the high point of $115,000,000 in 1953 has been accomplished. Net working capital at the end of 1961 was $334,920,365 compared with $333,382,567 a year earlier. Your Management was successful in reacquiring 8,380 shares of non-callable 7% Preferred Stock during the year. As of December 31, 1961 there was held in the treasury a total of 55,660 shares. In the absence of unusual developments no need for new long-term financing is anticipated in the foreseeable future. Taxes Taxes contuiued unabated during the past year with many states and municipalities increasing their income, franchise and excise taxes. Federal and State income and franchise taxes in 1961 amounted to $31,864,000. These taxes alone came to $8.07 per share of common stock compared with net earnings per common share of $6.47. Although the Com- pany is not involved in the collection of state and local tobacco taxes, they do represent a substantial levy on the sales of its products, resulting in higher prices to the con- sumer. At the end of 1961, 47 of the 50 states (all except Colo- rado, North Carolina and Oregon ) had a tax on cigarettes. The Company's tax bill for 1961 for Federal and other excise taxes amounted to $219,227,047. While the payment to the Treasurv Department of excise tax was deferred from a daily to a semi-monthlv basis in June 1959, it is hoped fur- ther adjustments will be permitted in the near future. TIMN 446143 7 I

Officers WILLIAM A. BLOUNT Chairman of the Board and Chief Executive Officer ZAcH Toms President and Chairman of Executive Committee J. BOWLING ANDERSON Vice President and Treasurer LAwRENCE N'~ BRUFF Vice President, Advertising FREDERICP R. DARKIS Vice President and Director of Research MILTON E. HARRINGTON Vice President, Leaf FRANCIs H. HORAN Vice President and General Counsel GRAYDON B. LEAKE Vice President, Sales LOY D. THObiPSON Vice President, Production SAMUEL WHITE Vice President, Marketing RUSSELI. M. CHENOWETH Secretary RALPH E MOORE Assistant Treasurer RussELL G. CuTTER Auditor RuFus H. HOSEA Assistant Secretary C`iF2ART FR B. MORGENTHALER Assistant Secretary DONALD G. NYREEN Assistant Secretary Transi.r Agent: Reyistrsr: Directors J. BOWLING ANDERSON WILLIAM A. BLOUNT LAWRENCE W BRuFF FREDERIcg R. DARxEs MILTON E. HARRINGTON FRANCIs H. HoRAN J. C`rA1VIDEN HUNDLEY GRAYDON B. LEAgE C. GRICE MCMuLLAN EDWARD J. PARRISH FREDERICK SHEFFIEr.n Loy D. THaMPSON ZACx Toms SAMUEL WHITE Chemical Bank New York Trust Co., 30 Broad Street, New York 15, N. Y. The First National City Bank of New York, 55 Wall Street, New York 15, N. Y. TIMN 446141 5

~ LIGGETT & MYERS TOBACCO COMPANY P-tt Notice o f Annual Meeting o f Stockholders Notice is hereby given that the Annual Meeting of Stockholders of LIGGETT & MYERS TOBACCO C011PANY, for the election of fourteen Directors for the ensuing year, and the transaction of such other busi- ness as may properly come before the meeting, will be held at Hotel Plaza, Journal Square, Jersey City, New Jersey, at 2:30 P.M. on Tuesday, March 27, 1962. Stockholders of record at the close of business on February 16, 1962 will be entitled to vote at the meeting. By order of the Board of Directors, R. M. CHENOWETH, Secretary New York, N. Y., February 23, 1962. The stock of the Company should be represented as fully as possible at the Annual Meeting. If you will not be present at the meeting please date, sign and return promptly the enclosed proxy in the accompanying envelope. PROXY STATEMENT Revocability of Proxy. The shares represented by all properly executed proxies which are sent to us will be voted in the man- ner specified. Under New Jersey law any person giving a proxy has the power to revoke it by written notice to the Secretary at any time before it is voted. Persons Making the Solicitation. The enclosed proxy is being solicited by the Management. The cost of solicitation will be paid by the Company. In addition to solicitation by mail, arrangements may be made with brokerage houses and other cus- todians, nominees and fiduciaries to send proxies and proxy material to their principals. No solicitation is to be made by specially engaged employees or other paid solicitors. Voting Securities and Principal Holders Thereo f. As of December 31, 1961, there were outstanding 169,481 shares of Preferred Stock and 3,949,438 shares of Common Stock, such stock being the voting stock of the Company. Each share of Preferred Stock (Par Value $100.00) entitles the holder to four votes and each share of Common Stock (Par Value $25.00) entitles the holder to one vote. As stated in the notice of meeting, stockholders of record at the close of business on February 16, 1962 will be entitled to vote at the meeting. Nominees and Directors. The number of Directors of the Company is fixed at fourteen who are annually elected and hold office until the next Annual Meeting of Stockholders, or until their successors are duly elected and qualified. It is intended that a vote under the proxy will be cast for the following nominees, who have been designated b ~ the Board of Directors: J. B. ANDERSON, W. A. BLOUNT, L. W. BRUFF, F. R. DARKIS, M. E. HARRINGTON, F. H. HORAN, J. C. HUNDLEY, G. B. LE;:11:E. C. G. McMULLAN, E. J. PARRISH, FREDERICK SHEFFIELD, L. D. THOMPSON, ZACH TOMS and S.41tUEL WHITE. If any such nominee is not a candidate for election as a Director at the meeting, an eeent ++hich the Management does not anticipate, the proxy will be voted for a substitute nominee and for the othera named above. All of the foregoing persons are now Directors of the Company. TIMN 446134

Capital Expenditures Capital expenditures in 1961 were mainly for machinery and other equipment to improve the efficiency of handling and processing tobacco in our cigarette factories, stemmeries and storages. Equipment was also added to our modern re- search laboratory. The construction started in 1959 on an addition to the Company's Turkish tobacco processing plant at Izmir, Tur- kev, was completed in 1961. This enlargement of facilities will result in further economy in operations. Total capital expenditures in 1961 amounted to approxi- mately $1,700,000 compared with $2,800,000 in the previous year. Depreciation charged to costs and expenses in 1961 amounted to $3,977,215. In the near future no major outlays for plant and equipment are anticipated. Manufacturing In 1961 the Manufacturing Department of the Company continued to provide modern machinery and equipment to obtain greater operational efficiency and at the same time protect and improve upon our high standards of quality. Among the more important improvements completed dur- ing the year were facilities for expanding our printing opera- tions, improved methods in leaf tobacco processing and blend- ing, the installation of atmospheric control equipment in leaf tobacco storages, and automatic machinery for enclosing cigarette packages into cartons. All of these improvements in manufacturing methods contributed to greater efficiency of operations. Finest quality is a Company tradition and toward this end your Management is constantly engaged in making further improvements in manufacturing methods. Our cigarette factories are located in Durham, North Caro- lina and Richmond, Virginia. Our smoking and chewing tobacco factory is located in St. Louis, Missouri. All leaf storages and processing plants are conveniently located near the supply of tobacco for the most efficient and economical operation. Export The Company's export sales were higher in 1961 than last year and continued to make an important contribution to An automatic machinery unit for packaging, cellophane wrapping, and cartoning L & M cigarettes. 9

=inar.c3ai,Condition millions 300 200 100 Taxes 40 30 20 10 Net Worth Compared With Long-Term Debt M Net Worth '55 '56 '57 '58 '59 '60 '61 . Federal and State Income ~ and FrancMe Taxes ~ Net Income After Taxes '55 '56 '57 '58 '59 '60 '61 The Company's over-all financial position continued to grow stronger in 1961. For the third successive year there were no short-term borrowings at the year end. The surplus cash available during the year was invested in negotiable time certificates of deposit because of high yields. Cash on hand at the end of the year, including negotiable time certifi- cates of deposit, amounted to $13,923,707 as compared to $11,059,994 a year earlier. Long-term debt was reduced by $5,750,000 in 1961 as a result of retirement of debentures through operation of the Sinking Funds. This reduction, together with the addition of $6,018,332 to net worth, further improved the ratio of funded debt to net worth. The funded debt was only 24.3% of net worth at the end of 1961, as compared with 41.4% six years ago. An over-all reduction of $42,250,000 in such debt from the high point of $115,000,000 in 1953 has been accomplished. Net working capital at the end of 1961 was $334,920,365 compared with $333,382,567 a year earlier. Your Management was successful in reacquiring 8,380 shares of non-callable 7% Preferred Stock during the year. As of December 31, 1961 there was held in the treasury a total of 55,660 shares. In the absence of unusual developments no need for new long-term financing is anticipated in the foreseeable future. Taxes Taxes continued unabated during the past year with many states and municipalities increasing their income, franchise and excise taxes. Federal and State income and franchise taxes in 1961 amounted to $31,864,000. These taxes alone came to $8.07 per share of common stock compared with net earnings per common share. of $6.47. Although the Com- pany is not involved in the collection of state and local tobacco taxes, they do represent a substantial levy on the sales of its products, resulting in higher prices to the con- sumer. At the end of 1961, 47 of the 50 states (all except Colo- rado, North Carolina and Oregon ) had a tax on cigarettes. The Companti"s tax bill for 1961 for Federal and other excise taxes amounted to $219,227,047. While the payment to the Treasurv Department of excise tax was deferred from a daily to a senii-inonthly basis in June 1959, it is hoped fur- ther adjustments .vill be permitted in the near future. 7 TIMN 446145

Operations 1961 Net Sales millions 600 - 500 400 300 200 100 '55 '56 '57 '58 '59 Net Earnings 20 16 12 '55 '56 '57 '58 5 '61 60 61 ~ Liggett & Myers Tobacco Company 1 ~ The following pages present some of the accomplishments of vour Company for the year 1961, giving an over-all picture of its activities as well as audited financial statements com- paring 1961 results with those of 1960. _ Sales Net sales for 1961 were $516, 7 08,042 compared to $543,172,587 for the previous year, representing a decline of about -1.9 q. The lower sales are largely accounted for by the continuing decline in CHESTERFIELD Regular Size ship- ments. Sales of CHESTERFIELD King Size and L&`I King Size, two of the Company's principal brands, continued to show an increase in the year. Earnings Consolidated net earnings for the year 1961 were $26,760,120 compared to $28,708,895 for 1960. Based on 3,949,438 shares outstanding at the end of the year, net earn- ings amounted to $6.47 per share as compared with $6.96 in 1960. Of the loss in earnings, 310 per share occurred in the first quarter and the balance of 18~ in the last three quarters. The percentage of net earnings after preferred dividends to net sales decreased from 5.05% in 1960 to 4.95% in 1961. Dividend Record 1961 was the 50th consecutive year in which common divi- dends have been paid by your Company. Total payments for the year amounted to $5.00 per share consisting of four quar- terly dividends of $1.25 each. The total amount of dividends paid in 1961 on both com- mon and preferred stock was $20,917,553. The balance of the year's earnings amounting to $5,842,567 was retained for use in the business. There .v,is de clared on January 17, 1962 the usual quar- terly dividcnd of S1.25 per share on common stock, payable on 'March 1, 1962 to stockholders of record February 16, 1962. , 6 TIMN 446144