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Annual Report / 1960 Liggett & Myers Tobacco Company, zInc.

Stockholders' Annual Meeting The Annual Nleeting of Stockholders will be held on Tuesdav, March 28, 1961 at Hotel Plaza, Journal Square, Jersev City, New Jersev, at 2:30 PA1. Formal notice of this meeting, together -,i•ith the proxy and proxy statement, will be mailed to stockholders on Feb- ruarv 24, 1961. Those of vou ,vho are unable to attend the meeting are urged to sign your proxies and return them promptly to the Companv so that the stock of the Company will be represented as full\• as possible at the meeting. Today your Company is owned by approsimatelv 48,200 stockholders. About 8?17~ of the total Common and Preferred stock was voted by person or proxy at the last annual stockholders' meetina on March 29, 1960.

Contents page 2 Highlights of Operations 3 President's Letter 4 Officers and Directors 5 Sales, Earnings and Dividend Record 6 Financial Condition and Capital Expenditures 7 Taxes and Manufacturing 8 Export and Leaf Tobacco 9 Research 12 Disposition of Total Earnings 13 Opinion of Certified Public Accountants 14 Consolidated Balance Sheet 16 Consolidated Earnings 17 Consolidated Retained Earnings and Notes to Financial Statements 18 Ten Years in Review 20 Advertising and Sales Promotion Li~gett & --NI~Ters Tobacco ConzpanjT 1960 Annual Report TIMN 446163

Liggett & Myers Tobacco Company Highlights of Operations 1960 1959 Net Sales ............... $543,172,587 $554,936,026 Earnings before taxes . . . . . . . . . . 62,712,895 65,074,689 Income and franchise taxes . . . . . . . 34,004,000 35,036,000 Earnings before preferred dividends . . . 28,708,895 30,038,689 Net earnings after preferred dividends .. 27,407,640 28,608,582 Percentage of net sales . . . . . . . . . 5.05 ~ 5.16°Jo Net earnings per share of common stock .. $6.96 $7.28 Dividends per share of common stock .. . $5.00 $5.75 Current assets . . . . . . . . . . . . . $354,845,972 $365,063,763 Current liabilities. . . . . . . . . . . , 21,463,405 32,906,832 Ratio . . . . . . . . . • • . . . . . . 16.5 to 1 11.1 to 1 Funded debt . . . . . . . . . . . . . . 78,500,000 84,250,000 Capital stock . . . . . . . . . . . . . . 116, 262,425 117,854,650 Additional paid-in capital . . . . . . . . 20,534,676 20,211,080 Retained earnings . . . . . . . . . . . 156,071,334 149,168,514 Approximate number of stockholders . . 48,200 47,000 2 TIMN 446164

J LIGGETT & MYERS TOBACCO COMPANY~~ Notice of Annual Meeting of Stockholders Notice is hereby given that the Annual Meeting of Stockholders of LIGGETT & MYERS TOBACCO COMPANY will be held at Hotel Plaza, Journal Square, Jersey City, New Jersey, at 2:30 P.M., on Tuesday, March 28, 1961 (1) to elect fourteen Directors for the ensuing year, (2) to consider and act upon the proposal of two stockholders to provide for election of Directors by cumulative voting, (3) to consider and act upon the proposal of two stockholders to change the location of the annual meeting from Jersey City to New York City, and to transact such other business as may properly come before the meeting, all as set forth in the follow- ing Proxy Statement. - Stockholders of record at the close of business on February 17, 1961 will be entitled to vote at the meeting. By order of the Board of Directors, R. M. CHENOWETH, Secretary New York, N. Y., February 24, 1961. 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. T'oting Securities and Principal Holders Thereof. As of December 31, 1960, there were outstanding 177,861 shares of Preferred Stock and 3,939,053 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 17, 1961 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 by the Board of Directors: J. B. ANDERSON, W. A. BLOUNT, L. W. BRUFF, F. R. DARKIS, 117. F. HARRINGTOl\T, F. H. HORAN, J. C. HUNDLEY, G. B. LEAKE, W. B. LEWIS. JR., C. G. 11cl1NLLAN, E. J. PARRISH, W. L. PERRY, L. D. THOMPSON and ZACH TOA1S. If any such nominee is not a candidate for election as a Director at the meeting, an event which the Management does not anticipate, the proxy will be voted for a substitute nominee and for the others named above. All of the foregoing persons are now Directors of the Company. TIMN 446165 ~~~

R'ith respect to each person nominated for election as a Director for the ensuing year, the following information is supplied: Principal Occupation Period served (in all cases as DiiPrtor NAn1P. with the Company) (Since Year) Shares of Common Stock Beneficially Owned December 31,1960 J. fl). A nderson .................. Treasurer 1958 400 W. A. 131ount ................... President (a) 1941 3,000 L. W. IiruR. ..................... dt•ertising Department Manager 1953 225 F. R. I)arki-s .................... Vice President and Director of Research 1956 700 A1. F. Harrington ................ Vice President and Leaf Department Manager 1955 310 F. H. Horan .................... Vice President and General Counsel (a) 1954 350 J. C. liundle}• .................. Branch Manager 1947 350 G. B. Leake .................... Assistant to Vice President 1959 195 W. B. Lewis, Jr .................. Vice President and Sales Manager (a) 1954 900 C. G. Mc'_1lullan ................. Branch Manager 1960 596 E. J. Parrish ................... Export Department Manager 1960 211 W. L. Perry .................... Vice President and Chairman of Executive Committee (a) 1950 3,500 L. D. Thompson ................. Vice President, Manu f acturing and Leaf (a) 1951 400 Zach Ton-is ..................... Executive Vice President (a) 1945 2,800 (a) Member of the Executive Committee. Mr. McMullan has been associated with the Company since 1925 and Manager of our Richmond, Vir- ginia Branch since 1947. He was elected a member of the Board of Directors on March 30, 1960. '11r. Parrish began his career -,cith the Company in 1934. During the past five years he has been Man- ager of the Export Department. He was elected a member of the Board of Directors on March 30, 1960. Remuneration and Other Transactions with Management and Others. For the calendar year 1960, the Company and its subsidiaries paid directly to each of its Directors and Officers. where the same exceeded $30,000, the following amounts: Name of Individual Capacities in or Identity Which Remuneration of Group was Received Direct Aggregate Remuneration (a) Estimated Annual Benefits Upon Retirement J. B. Anderson .................. Treasurer $45,000 $18,869 W. A. Blount ................... President 70.OOQ 25,000 L. W. Bruff ...................... drertising Department Manager 80,000 25,000 F. R. Darkis .................... Vice President and Director of Research 60,000 9,663 i1I. E. Harrington ............... Vice President and Leaf Department Manager 60,000 19,827 F. H. Horan .................... Vice President and General Counsel 45,000 25,000 J. C. Hundley .................. Branch Manager 50.000 15,322 G. B. Leake ..................... ssistant to Vice President 35,000 12,719 W. B. Lewis, Jr . ................ Vice President and Sales Manager 45,000 25,000 W. L. Perry .................... Vice President 48,000 25,000 L. D. Thompson ................. Vice President 100,000 25,000 Zach Toms ..................... Vice President and Secretary 48,000 25,000 Directors and Officers as a Group 734,750 (a) Does not include the deferred portion of compensation for 1960 provided for five of the senior officers, as ex- plained below. Under employment contracts with the Company, Messrs. W. A. Blount, F. H. Horan, W. B. Lewis, Jr., W. L. Perry and Zach Toms will each be entitled, contingent upon their compliance with certain conditions, to TIMN 446166

receive annual, post retirement compensation in varying amounts, payable to each participant in sixty equal monthly installments over a period of five years, the first thereof to be payable in the month next succeeding his retirement or termination of employment. The respective amounts of contingent compensation for 1960, payable to them during each of the five years after termination of employment and constituting, in each case, one-fifth of the contingently payable part of compensation for such year, are as follows: W. A. Blount, $26,000; F. H. Horan, $21,000; W. B. Lewis, Jr., $21,000; W. L. Perry, $22,400; Zach Toms, $22,400; and Directors and Officers as a Group, $112,800. Pursuant to the Incentive Stock Option Plan for Key Employees, the Company granted options on Febru- ary 17, 1960 to Directors and Officers named in the preceding tabulation to purchase shares of common stock of the Company at a price of $823/g per share as follows: J. B. Anderson, 400 shares; F. R. Darkis, 600 shares; M. E. Harrington, 400 shares; G. B. Leake, 200 shares; L. D. Thompson, 1,000 shares and Directors and Officers as a group, 2,600 shares. For each such option the option price is the closing market price on the day the option was granted and the duration is ten years from such date. Since the beginning of the last fiscal year and up to February 1, 1961 Directors and Officers exercised options to purchase 3,054 shares of the common stock of the Company. Of this number 100 shares were pur- chased at $62~~ per share and the balance were purchased at $67~g per share. The name of each such person, the number of such shares purchased by him and the market value per share (the mean between the high and low prices on the New York Stock Exchange) on each date of purchase are as follows: J. B. Anderson, 100, $83.13; F. R. Darkis, 200, $84.25 ; F. H. Horan, 200, $84.31; J. C. Hundley, 150, $85.31; C. G. McMullan, 104, $82.69; E. J. Parrish, 100, $84.25; V'. L. Perry, 1,500, $81.38; L. D. Thompson, 100, $84.25; and Zach Toms, 600, $82.19. Directors and Officers as a group purchased 750 shares of common stock of the Company during the first calender quarter of 1960 when the price range per share on the New York Stock Exchange was 89L50- $81.00; 1,500 shares during the third calendar quarter when such price range was $86.75-$80.125; 700 shares during the fourth calendar quarter when such price range was $85.375-$80.875; and 104 shares during the first calendar quarter of 1961 up to February 1, 1961, when such price range was $90.75-$81.375. STOCKHOLDERS' PROPOSALS LeN+-is D. Gilbert and John J. Gilbert of 1165 Park Avenue, New York 28, N. Y., who state that each owns 18 shares of Common Stock of the Company and that they represent a family interest of 18 additional shares, have jointly informed the Company in writing that they intend to present at the meeting the following resolutions for action by the stockholders: Proposal I "RESOLVED: That the stockholders of Liggett & 117yers Tobacco Company, assembled in annual meeting in person and by proxy, hereby request that the Board of Directors take the steps necessary to provide for elections of directors by cumulative voting, which means each stockholder shall be entitled to as many votes as shall equal the numher of shares he owns niultiplied by the number of directors to be elected and he may cast all of such votes for a single candidate or any two or more of them as he may see fit." The statement in support of this resolution submitted by such stockholders is as follows: "Last year 3,957 owners with 278,153 shares voted in favor of our similar resolution, an in- crease over the 2,696 owners with 175,777 shares who voted in its favor the year before. Cumulative voting is especially important at Liggett & Myers because of the company's prac- tice of placing only corporate officers on the Board of Directors. Cumulative voting would allow stock- holders to chose an 'outside' director who could be independent of management thinking when express- ing his views." For the following reasons the Directors recommend a vote against this proposal: It is the duty of the Board of Directors to administer the affairs of the Company for the benefit of ALL its stockholders. The present system of voting in this Company, under which the holders of a majority of the shares elect a Board, should result, and in our Company has resulted, in a Board each member of which looks after the interests of the whole group of stockholders and not of a small fraction. If the method of voting were changed as proposed, a Director elected only because of a cumulative voting provision might represent and TIMN 446167

act f,,r tlw benefit of a special interest, which might N%rll ht• contrary to the welfare of the stockholders as a whnle. It is recommended that the stockholders vote against this proposal. Pro posal ll "RESOLVED: That the stockholders of Lingett & Myers Tobacco Company, assembled in annual rnecting in person and by proxy, hereby request that the Board of Directors take the necessary steps to change the location of the annual meeting from Jersey City to New York City." Tlir statement in support of this resolution submitted by such stockholders is as follows: "Last year 2,831 owners with 213,354 shares voted in favor of our similar resolution. In its proxy statement arguments against our proposal management stated that stockholders miaht well be of the opinion that annual meetings should not be held in a location of special con- Venience to one relatively small group of owners. We agree and the solution lies in rotating the annual meeting to principal plant locations and to large cities such as New York. Adoption of this resolution would be a step in the right direction." F or the following reasons the Directors recommend a vote against this proposal: Since its incorporation under the laws of New Jersey in 1911 this Company has always held its meet- inp N+ithin the boundaries of its corporate home state. For many years the meetings were invariably held in Jersey City. In 1943, for local tax reasons, the meeting was moved to Flemington. Three years ago, the reason for that move having disappeared, it was thought desirable to return to the historical place of ineeting, Jersey City. Except for a few stockholders that location is as convenient as any in the New York-New Jersey metro- politan area. It must also be remembered that ours is a large national group of stockholders who could rea- sonably believe that meetings should not be set for a place of special convenience for one relatively small group or for a number of even smaller groups of stockholders by rotating the places of such meetings. It is recommended that the stockholders vote against this proposal. Other I<latters. As of this date the AZanagement knows of no business which will come before the meeting other than that aho~-e set forth, but if any other matters properly come before the meeting, the persons named as proxies will vote on them in accordance with their best jud`ment. The Company's accounts for the year 1960 and for many prior years have been audited by Messrs. Haskins & Sells, independent public accountants. Thev are appointed each year by resolution of theyBoard of Directors. A member of that firm will be present at the Annual Meeting and will be available to answer such questions as may properly be asked of him. Upon written request to the Secretary of the Company, there will be furnished to any Stockholder a re- port of the Annual 117eeting that will be prepared as soon as practicable after the meeting has been held. The Stocb-holders are urged to send in their proxies without delay. Prompt response is helpful and your cooperation rrill be appreciated. By Order of the Board of Directors, R. D7. CHENOWETH, Secretary New Y ork, N. Y., February 24, 1961 TIMN 446168

WILLIAM A. BLOUNT To the Stockholder•s: This 1960 Annual Report, the 50th report of Liggett & Myers Tobacco Company, presents the operations and audited financial statements of the Company for the year 1960, with comparative figures for the previous year. Research has long been an important activity of our Company. One of the most significant developments during the past year was the com- pletion of the new wing and dedication of the Company's Research Center in Durham, North Carolina. This expansion should provide the necessary space for our growing research program over the next decade. In the following pages we give you a more detailed report about our research activities which we hope will be of interest. There is good reason for an optimistic outlook in the cigarette industry today. Domestic consumption of cigarettes reached a new high level in 1960 for the sixth consecutive year. The outlook for the next several years should be equally promising. While the Company is unable to report an increase in sales for last year, there are encouraging signs in our business for the future. The sale of CHESTERFIELD king size cigarettes continued its upward trend. The decline in sales of CHESTERFIELD regular size, which has persisted for several years, continued in 1960 but at a reduced rate. The sale of L&M king size cigarettes also showed a healthy increase during the past year. We have strengthened the OASIS advertising and redesigned the package and carton in an effort to gain a larger share of the menthol cigarette market. We are hopeful that these changes will produce results. On behalf of the entire organization, I wish to express appreciation to the shareowners for their continued confidence, interest and helpfulness during the past year. February 3, 1961 «'ILLIA;1i A. BLOUNT President 3 TIMN 446169

Liggett & Myers Tobacco Company F:xecutive Offices - 630 Fifth Avenue, New York 20, N. Y. Officers Directors VVILLIAM A. BLOUNT President & Chie f Executive O fficer ZACH TOMs Executive Vice President WILLIAM L. PERRY Vice President & Chairman of Executive Committee .i . T;- ar._ .,• ~ILLiAM B. LEWis, JR. Vice President, Sales FRANCIS H. HORAN Vice President & General Counsel LOY D. THOMPSON Vice President, Production MILTON E. HARRINGTON Vice President, Lea f FREDERICK R. DARKIS Vice President & Director of Research J. BOwLING ANDERSON Treasurer RUSSELL M. CHENOWETH Secretary RALPH P MoORE Assistant Treasurer RUSSELL G. CUTTER Auditor FREDERICK J. GRAEFF Assistant Secretary RUFUS H. HOSEA Assistant Secretary CHARLES B. MORGENTHALER Assistant Secretary J. BOWLING ANDERSON WILLIAM A. BLOUNT LAWRENCE W BRUFF FREDERICK R. DARKIs MILTON E. HARRINGTON FRANCIS H. HORAN J. CAMDEN HUNDLEY GRAYDON B. LEAKE WILLIAM B. LEWIS, JR. C. GRICE MCMULLAN EDWARD J. PARRISH WILLIAM L. PERRY LOY D. THOMPSON ZACH TOMS Transfer Agent - Chemical Bank New York Trust Co., 30 Broad Street, New York 15, N. Y. Registrar - The First National City Bank of New York, 55 Wall Street, New York 15, N. Y. Executive Personnel 4 At its meeting on March 30, 1960, the Board of Directors voted to increase the number of Directors of the Company from 12 to 14. C. Grice McMullan, Manager of the Richmond Branch and Edward f. Parrish, Manager of the Export Department of the Company were elected to fill the new positions on the Board. Two new Vice Presidents were elected by the Board of Directors at the March 30, 1960 meeting. These were Dr. Frederick R. Darkis, Director of Research and Milton E. Harring- ton, Leaf Department Manager. At the same meeting Russell M. Chenoweth was elected Secretary of the Company to succeed Zach Toms who resigned from that position. TIMN 446170

Operations 1960 There is presented on the following pages some of the accomplishments of your Company for the year 1960. For the industry, it was a year of intense activity char- acterized by increasing competition and further switch- ing of brand loyalties among the consumers. Net Sales 60o 500 400 300 200 100 fifil '54 5 '57 '58 '5 Net Earnings 32 28 24 20 16 12 M '54 '55 6 '57 '58 'S9 0 '60 Sales Net sales of the Company declined from $554,936,026 in 1959 to $543,172,587 in 1960, or about 2.1%. The major portion of this decline took place during the first nine months of the year. For the year as a whole the sale Of CHESTERFIELD king size and L&M king size cigarettes each showed a substantial gain from the pre- vious year and offer encouragement for the months ahead. CHESTERFIELD regular size continued to decline, however, the rate of decline was considerably reduced. Earnings Earnings after taxes amounted to $28,708,895 as com- pared with $30,038,689 in 1959. Based on 3,939,053 common shares outstanding at the end of the year, net earnings amounted to $6.96 per share as compared with $7.28 in 1959. Earnings in the fourth quarter were equal to $1.76 per share whereas earnings in the comparable period of the previous year were $1.47 per share. Dividend Record The Company's record of continuous dividend pay- ments on the Common Stock was extended for the 49th consecutive year. Total payments in 1960 amounted to 5 TIMN 446171

$5.00 per share, consisting of four quarterly dividends of $1.25 each. The total amount of dividends paid in 1960 on both Common and Preferred stock was $20,987,746. The balance of 1960 earnings amounting to $7,721,149 was retained for use in the business. On January 18, 1961, a regular dividend of $1.25 per Common share was declared, to be paid on March 1, 1961, to stockholders of record February 17, 1961. Financial Condition - The financial condition of the Company continued to grow stronger in 1960. For the second successive year there were no short-term borrowings at the year end. The investment in United States Government securi- ties, including tax anticipation notes, amounted to $14,932,468 on December 31, 1960 compared with $4,992,485 at the end of the previous year. Long-term debt was $5,750,000 lower at the end of 1960 as a result of retirement of debentures through operation of the Sinking Funds. This reduction, together with the addition of $5,634,191 to net worth, produced a further improvement in the ratio of funded debt to net worth. At the end of 1960 funded debt was only 26.8% of net worth compared with 45.3% at the end of 1954. Further steps were taken to reduce the number of shares of non-callable 7% Preferred stock of the Com- pany outstanding. During the year your Management succeeded in reacquiring 17,820 shares of such stock. As of December 31, 1960 there was held in the treasury a total of 47,280 shares. In the absence of unusual developments no need for new long-term financing is anticipated in the foresee- able future. Net Worth Compared With Long-Term Debt  Net Worth  Long-Term Debt 300 200 100 4 '55 '56 '57 '59 '60 Capital Expenditures The construction of the new addition to the Com- pany's research building in Durham, North Carolina, was completed on schedule during the past summer and appropriate dedication ceremonies took place on Sep- tember 30, 1960. 6

Taxes 70 60 50 40 30 20 10 Federal and State Income ' and Franchise Taxes Net Income After Taxes '54 '55 '56 '57 '58 '59 60 The program of maintaining plant and equipment at maximum efficiency was continued during the year 1960. Capital expenditures amounted to approximately $2,800,000 or slightly more than the amount of pur- chases in 1959. No major capital expenditures appear necessary in the near future. Depreciation charged to cost and expense in 1960 amounted to $3,909,369. Taxes Taxes continued to be an imp~it factor in the Company's operations. Excise taxes in 1960 totaled $232,786,174. Although the Treasury Department adopted in June 1959 a semi-monthly method for pay- ment of such taxes instead of a daily basis formerly in effect, it has not resulted in any material savings to the Company. The excise taxes must still be paid several weeks prior to the time when the Company receives payment from its customers. The industry has every right to expect that further adjustments will be granted in the future. Federal and State income and franchise taxes in 1960 amounted to $34,004,000. Such taxes alone came to $8.63 per share of common stock compared with net income of $6.96 per share. Manuf acturing Our factories are strategically located near the source of supply of leaf tobacco and are considered to be among the most modern in the industry. The up-to-date machinery used in all departments is the finest equip- ment available. Our cigarette factories are located in Durham, North Carolina and Richmond, Virginia. You are cordially invited to visit either of them whenever you are in the vicinity. Since the manufacturing methods used in producing the finished product contribute greatly to quality and consumer acceptance of the product, the Company is constantly exploring the possibility of making further Almost 800,000 people have visited our modern cigarette factories in Durham, N. C. and Richmond, Va. 7 TIMN 446173

improvements in manufacturing methods that will pro- tect the standards of quality and at the same time pro- duce greater efficiency in operations. Liggett & Myers buyers bid at auctions for mild, top quality tobaccos. 8 Export The export sales of the Company's products, prin- cipally its cigarette brands, continue to make an impor- tant contribution to the Company's over-all business. We have engaged in trade with maWTloyal, well estab- lished customers throughout the w d for a long num- ber of years and through a mutually cooperative and satisfactory relationship with them we have been able to develop good markets for our products. Wherever American cigarettes are sold, whether to foreign tobacco monopolies, ship's-stores, U. S. military overseas, air lines, diplomatic corps or other outlets, we are adver- tising and actively promoting the sale of the Company's brands. Leaf Tobacco Our tobacco buyers are present on every important tobacco market, selecting only the choicest tobaccos to meet the exacting standards set for all Liggett & Myers' products. The 1960 crop of flue-cured tobacco totalled 1,368,- 000,000 pounds, compared with 1,185,000,000 pounds in 1959. The season average price was 59.90 per pound, the highest on record and more than 20 per pound above the average for the 1959 crop. The Government support price for the 1960 crop was 55.50 per pound. The U. S. Department of Agriculture has announced a national marketing quota of 1,122,000,000 pounds for the 1961 crop. The burley markets had sold approximately 80% of the 1960 crop before the end of the year. The crop is estimated at approximately 500,000,000 pounds, or slightly lower than the previous crop. Market prices through the end of the year averaged 65.20 per pound, just a shade lower than the all-time high average of 66.20 established for sales of the 1958 crop. The support price for the 1960 crop was 57.20, the same as the previous year. TIMN 446174

Research GEN. JAMES M. ~'iAVIIW The new Liggett & Blyers Research Center is more than twice the size of the original building. At dedication ceremonies for the new Liggett & Myers Research Center on September 30, 1960, Governor Luther H. Hodges of North Carolina said: "I would lil:e to commend Liggett & Myers Tobacco Company on the wisdom and initiative they have displayed in expanding their research activities ... we gather here to dedicate a great research establishment second to none in its field." In his dedication address, General James M. Gavin stated: "We look upon Liggett & Myers as being outstanding in its awareneso of the importance of research." General Gavin, famous#or his World War II combat record and his scientific roles in the United States defense program after the War, is today Presi- dent of Arthur D. Little, Inc., one of the nation's leading engineering and research firms. When Liggett & Myers was incorporated in 1911, scientific research was conducted at the Company's St. Louis plant. In 1950, the Company completed the most modern research laboratory in the industry in Durham, North Carolina, primary location of the Com- pany's leaf buying and cigarette manufacturing opera- tions. By 1958, it had become apparent that the "new" research building, despite its generous size and modern design, would soon be inadequate for the Company's rapidly expanding research program. A new wing that 9 TIMN 446175

would more than double the size of the building was planned, and construction was completed on schedule in 1960. This 100 percent increase in capac•ity should provide for the Company's needs in the next decade. The new Liggett & Myers Research Center represents an investment of more than $2,250,000 and contains over 48,000 square feet of floor space, largely devoted to laboratory work space. Included in these amounts are 27,500 square feet of floor space in the new wing, which was constructed at a cost of approximately $1,250,000; and it has been constructed so that a third level can be added when further expansion is needed. The upper level of the new wing houses a 120-seat auditorium, five new organic chemistry laboratories and seven new specialized laboratories, including a Tracer Laboratory, an Instrumentation Laboratory, Hood and Chromatography rooms and a Cold Laboratory. The lower level is primarily devoted to engineering research and development. It contains two conventional chem- ical laboratories, an explosion-proof laboratory, two Temperature and Humidity Controlled laboratories, an Electronics Laboratory, a Dust Controlled Laboratory, a drafting room and a machine shop. Occupying both levels of the new wing at the North end, is a 90-foot by 67-foot Engineering Pilot Plant Area, which will house the facilities necessary to perform all cigarette manufacturing operations, thus making it possible to investigate all variables in these operations under controlled conditions. With these facilities, the Company's research engineers are now better equipped to improve present manufacturing processes, to develop new ones and to test all changes and innovations before they are incorporated into the production line. The original building now contains four large physi- cal chemistry laboratories on the ground floor. In the basement, there is a new glass blowing shop, three Tem- perature and Humidity Controlled laboratories, a pho- tographic dark room, Preparation and Grinding rooms and a new, expanded area specially equipped for flavor investigations, including a new Flavor Laboratory and new Flavor Storage and Smoking Panel rooms. The top floor now houses six modern analytical chemistry labo- 10

ratories, standard Kjeldahl and Titration rooms and an expanded area, for the growing research library facilities. At the dedication of the Company's new Research Center, Dr. Frederick R. Darkis, Vice President and Director of Research, made the following remarks about the Coinpany's research program. "During the past sev- eral centuries, tobacco in the form of numerous manu- factured products has been used.~.i.i3 ever increasing quantities by a continuously greaterf 6umber of people. The use of tobacco has made a sigru&ant contribution to the pleasure, satisfaction and sense of well-being of those who use it. "Beginning with the period when tobacco was first used in Europe, many people have vigorously opposed its use. Over the years, many criticisms of it have been made and numerous impediments to its use, including legislation, have emerged from time to time. In large part, these accusations and impediments have fallen by the wayside, due to the unreliable information on which they were based. During the first half of the 20th century, the use of tobacco became rather gen- erally accepted and was subject to less criticism. How- ever, during the past decade, the use of tobacco has experienced its most severe opposition. This opposition is based on the contention that using tobacco in the form of cigarettes will seriously impair the health of the smoker. "Those medical and statistical investigators who have produced the information that has led to the most seri- ous indictments ever leveled against tobacco have been quite vigorous in their attack on its use. They have drawn and given wide circulation to many conclusions from their findings that most people trained in the same disciplines fail to find justifiable. Some of their findings merit consideration and they should not be ignored. "We have carried on cooperative work with govern- ment agencies over the years, and have contributed financially and otherwise to the programs of research carried on by governmental and private organizations. "We have devoted much effort to fundamental re- search and have and are publishing information obtained as a result of this work. We have not restricted Vacuum system for handling 11 gaseous materials in a Physical Chemistry Laboratory. TIMN 446177

our research program to that necessary developmental work so pertinent to the everyday operations of the Company. "We have organized and developed what we believe is the most inclusive program in existence directed toward the separation, identification and the quantita- tive determination of the numerous constituents that make up those two complex materials, namely tobacco tissue and tobacco smoke. This_~Trogram goes even further in that the biological act'iv& of the component parts as well as that of the whole are being studied by the best available techniques. It is hoped that these findings will help to clarify the maze of opinion that exists at present in respect to the problem of tobacco and health." Disposition of Total Earnings for 1960 The Company received for goods sold to customers and from dividends and interest a total of $544,062,000. This is how it was used or set aside. 12

qr . Opinion of Certified Public Accountants HASKINS & SELLS CERTtFiEU PUBLIC ACCOUNTANTS TWO BROADWAY NEW YORK 4 To the Directors and Stockholders of Liggett & Myers Tobacco Company: We have examined the consolidated balance sheet of Liggett & Myers Tobacco Company and its wholly-owned consolidated subsidiary as of December 31, 1960 and the related statements of consolidated earnings and retained earnings for the year then ended. Our examina- tion was made in accordance with generally accepted auditing stand- ards, 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, 1960 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. X4'4.;' a•4-~ January 25, 1961 13

Liggett & Myers Tobacco Company Assets CURRENT ASSETS: U. S. Government securities - at cost plus accrued interest (quoted market value: 1960, $4,999,750; 1959, $4,992,485 ) . . . . . . . . . . . . . . . Accounts receivable, customers . . . . . . . . . . Accounts receivable, others . . . . . . . . . . . Leaf tobacco, at average cost . . . . . . . . . . Manufactured stock and operating supplies, at average cost . . . . . . . . . . . . . . . . TOTAL CURFEENT ASSETS . . . . . . . . . , PROPERTY, PLANT AND EQUIPxiENT - AT COST: Land and buildings . . . . . . . . . . . . . . . Machinery and equipment . . . . . . . . . . _ , Total . . . . . . . . . . . . . . . . . . Less accumulated depreciation . . . . . . , NET PROPERTY, PLANT AND EQUIPMENT ... OTHER ASSETS: Brands, trade-marks and good will . . . . . , , , Investments in unconsolidated subsidiary companies, at cost . . . . . . . . . . . . . . . . . . . . Investment in foreign tobacco company, at cost ... Foreign currency deposits subject to withdrawal restrictions . . . . . . . . . . . . . . . . . . Prepaid expenses and deferred charges ....,. TOTAL OTHER ASSETS . . . . , , , , . . . TOTAL . . . . . . . . . . . . . . . . 14 1960 $ 11,059,994 4,998,055 23,223,150 1,151,657 282,169,184 32,243,932 354,845,972 20,578,094 58,170,734 78,748,828 43,626,750 35,122,078 1959 $ 7,328,241 4,992,485 21,189,902 1,159,595 292,005,364 38,388,176 365,063,763 20,229,351 57,361,691 77,591,042 41,390,536 36,200,506 1 919,004 4,000 1 887,004 4,000 1,005,034 1,183,911 3,111,950 $393,080,000 1,025,076 1,210,726 3,126, 807 $404,391,076 TIMN 446180

Liabilities 1 1960 -A 1959 CURRENT LIABILITIES: Accounts payable . . . . . . . . . . . . . . . . Dividend payable on preferred stock . . . . . . . Accrued interest on debentures . . . . . . . . . . Funded debt payable within one year ....... Taxes payable and accrued (less, for 1960, U. S. Treasury tax anticipation notes, $9,934,413) . . . TOTAL CURRENT LIABILITIES . . . . . . . . $ 3,167,198 311,607 675,391 5,750,000 11,559,209 21,463,405 $ 3,295,512 345,067 721,875 5,750,000 22,794,378 32,906,832 FUNDED DEBT: 25/ °o Sinking Fund Debentures, $5,750,000 payable annually during the years 1962 through 1964, $23,750,000 payable in 1965, and $37,500,000 pay- able in 1966 . . . . . . . . . . . . . . . . . RESERVE: For deferred contingent compensation (net of esti- mated future income tax reductions ) . . . . . . STOCKHOLDERS' EQUITX: Preferred stock 7% cumulative, par value $100 - authorized, 341,398 shares; issued, 225,141 shares; in treasury, 1960, 47,280 shares, and 1959, 29,460 shares . . . . . . . . . . . . . . . . . . . . Common stock, par value $25 - authorized, 5,000,000 shares; issued, 1960, 3,939,053 shares, and 1959, 3,931,462 shares (Note 1) . . . . . . . . . . . Paid-in capital in excess of par values of capital stocks (Note 2 ) . . . . . . . . . . . . . . . . . . Retained earnings (Note 3 ) . . . . . . . . . . . TOTAL STOCSHOLDERS' EQUITY . . . . . . . TOTAL . . . . . . . . . . . . . . . . 78,500,000 248,160 17,786,100 98,476,325 20,534,676 156,071,334 292,868,435 $393,080,000 84,250,000 19,568,100 98,286,550 20,211,080 149,168,514 287,234,244 $404,391,076 15 TIMN 446181

Statement of Consolidated Earnings (for years ended December 31) NET SALES . . . . . . . . . . . . . . . . . . . . . . . . OTHER EARNINGS: Interest and dividends received . . . . . . . . . . . . . Profit from sale of land and buildings . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . TOTAL EARNINGS . . . . . . . . . . . . . . . . . COSTS AND EXPENSES: Cost of goods sold, selling, administrative and general expenses . . . . . . . . . . . . . . . . . Provision for depreciation . . . . . . . . . . . . . . . . Interest and amortization on funded debt . . . . . . . . . Interest on bank loans . . . . . . • • • . • • . . . . . 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 COMMON STOCK . . . . , , , , , 16 Liggett & Myers Tobacco Company 1960 $543,172,587 889,330 544,061,917 474,847,617 3,909,369 2,341,504 250,532 31,573,000 2,431.000 515,353,022 28,708,895 1,301,255 $ 27,407,640 1959 $554,936,026 370,848 100,547 349,897 555,757,318 484,407,387 3,705,075 2,466,176 76,333 27,658 32,350,000 2,686,000 525,718,629 30,038,689 1,430,107 $ 28,608,582 TIMN 446182

Liggett & Myers Tobacco Company Statement of Consolidated Retained Earnings (for years ended December 31) BALANCE AT BEGINNING OF YEAR . . . . . . . . . . . . . . . ADD - Net earnings for the year . . . . . . . . . . . . . . . TOTAL . . . . . . . . . . . . . . . . . . . . . DEDUCT: Cash dividends of $7 per share on preferred stock ..... Cash dividends of $5.00 per share for 1960, and $5.75 per share for 1959, on common stock . . . . . . . . . . . . Total dividends . . . . . . . . . . . . . . . . . . . Excess of cost over par value of preferred stock reacquired.. TOTAL . . . . . . . . . . . . . . . . . . . . . BALANCE AT END OF YEAR (Note 3 ) . . . . . . . . . . . . . Notes to Financial Statements December 31, 1960 1. At January 1, 1960 there were outstanding options granted under the Incentive Stock Op- tion Plan to officers and key employees to pur- chase, subject to certain limitations, 40,359 shares of the Company's common stock, and 59,700 shares were reserved for the granting of additional options. During 1960, options for 11,600 shares were granted for an aggregate option price of $955,550, options for 7,591 shares were exercised for an aggregate option price of $513,371, and options for 600 shares were cancelled. At December 31, 1960, options were outstanding with respect to 43,768 shares having an aggregate option price of $3,160,799, and 48,700 shares were reserved for the grant- ing of additional options on or before March 31, 1960 $149,168,514 28,708,895 177,877,409 1,301,255 19,686,491 20,987,746 818,329 21,806,075 $156,071,334 1959 $143,729,281 30,038,689 173,767,970 1,430,107 22,585,258 24,015,365 584,091 24,599,456 $149,168,514 1961. In accordance with the Plan, option prices represent closing 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 1960 by $323,596, representing the excess of sales price over par value of common stock sold to officers and em- ployees under the Incentive Stock Option Plan. 3. Under the terms of the Indenture covering the 25/ °1a Sinking Fund Debentures, $60,282,541 of retained earnings is restricted as to payment of cash dividends on common stock. This limi- tation does not apply to stock dividends on common stock, nor does it restrict payment of dividends on preferred stock. 17 TIMN 446183

Ten Years in Review (Dollars expressed in thousands except per share figures) Year Ended December 31 Operating Results 1960 1959 , Net Sales $543,173 55 5 k.936 Earnings before taxes 62,713 h.,.0-5 Taxes on income 34,004 ',5.n 3r, Net earnings 28,709 3o.0:3s1 Per share of common stock(a) 6.96 ^.~~5 Common dividends 19,686 2'_.--M Pershare(a) 5.00 -) .7 3 (l) ~ Preferred dividends ($7 per share) 1,301 1. 130 Earnings retained 7,722 t,.02-} Sinking fund requirements 5,750 -3, 750 Financial Position (Year End) Inventories 314,413 3:30.,39-1 Current assets 354,846 36 5 _0 6-1 Working capital 333,383 3'32.115 7 Plant and equipment ( net ) 35,122 36 ._0 1 (a) Based on number o f shares outstand- Total assets 393,080 Eo ~ i. 1301 ing at end of each year. Funded debt 78,500 5-i.250 (b) Commencing June 1, 1959 regular Short-term debt(c) 5,750 quarterly dividends o f$1.25 per share have been paid. Stockholders' equity 292,868 ?37.2 34 (c) Includes notes payable to banks and Per share of common stock(a) 69.83 GS.OS funded debt payable within one year. TIMN 446184

Liggett & Myers Tobacco Company 1958 1957 1956 1955 1954 1953 1952 1951 $556,046 $570,385 $564,966 $546,965 $548,862 $586,499 $603,081 $539,947 67,912 61,895 58,367 56,678 47,835 51,964 46,295 49,672 36,689 33,621 31,916 29,957 25,634 28,985 24,846 27,919 31,223 28,274 26,451 26,721 22,201 22,979 21,449 21,753 7.60 6.85 6.39 6.46 5.30 5.50 5.11 5.19 19,571 19,564 19,561 15,646 19,558 19,558 19,558 19,558 5.00 5.00 5.00 4.00 5.00 5.00 5.00 5.00 1,461 1,461 1,461 1,461 1,461 1,461 1,461 1,461 10.191 7,249 5,429 9,614 1,182 1,960 430 734 5,750 5,750 5,750 2,000 3-11.31S 381,029 409,071 389,011 -123_-139 -131,3-12 421,281 421,930 369,974 416,458 444,693 425.252 459,146 46 7,5-19 460,754 452,212 333.054 3?7.-11 7 328,922 332,798 330,112 333.-1L 333,598 333,120 35.582 36>215 03,667 30.634 28.692 26,789 25,003 25,070 409,103 456,440 481.671 458,592 -191,309 497,229 -188,28S 479,794 90.000 95,750 101,500 107,250 _ 113,000 115,000 115,000 115,000 7,456 59.060 83,750 57,750 97,220 99,000 96,000 85,067 2S2.1S2 271.649 264,400 258,888 2-19,275 248.092 246,132 245,702 66.70 64.09 62.24 60.85 58.39 58.09 57.58 57.48 19 TIMN 446185 - -- -- -- - -~..~--

Cigarettes CHESTERFIELD COUPON DUKE FATIMA HOME RUN L&M OASIS PICAYUNE PIEDMONT Smoking Tobaccos BUCKHORN BUFFALO COCKADE CORN CAKE COUNTRY GENTLEMAN DINNER BELL DUKE'S GRANGER GROWLER HARMONY HOME RUN KENTUCKY LONG CUT KING BEE LA TURKA MASTERPIECE MEERSCHAUM MOUNTAIN ROSE OLD STYLE PLOW BOY S.&M. SUMMERTIME SWEET TIP TOP VELVET VIRGINIA EXTRA Chewing Tobaccos CLIPPER DRUMMOND NATURAL LEAF EVERY DAY SMOKE FISH HOOK GRANGER TWIST HONEY DIP TWIST HORSE SHOE J. T., R. & R. J. T. SMOOTH J. T. BRIGHT CLUBS KING PIN MASTERPIECE PICK NATURAL LEAF PICNIC TWIST RED BELL SPARK PLUG STAR STERLING SWEET BURLEY SWEET CUBA TINSLEY'S THICK UNCLE SAM UNION STANDARD W. N. T. NATURAL LEAF Advertising and Sales Pronzotion On these pages you will find all of the principal products manufactured by Liggett & Myers Tobacco Company. Notice that the OASIS package and carton have been redesigned with a new oasis scene. This scene is highly suggestive of the characteristics of the product: fresh- ness, coolness, mildness. The CHESTERFIELD carton has also been given a "new look." Gold trim has been added to give a richness and heighten its consumer appeal. In order to increase the consumer's awareness of the Company's leading brands, one of the primary objectives of the advertising and sales departments is to make the same sales message which is used in print and on TV and heard on the radio, also visible in hundreds of thousands of retail outlets. When the Liggett & Myers salesman goes into the field, he is armed with special display material and promotion plans to sell the Com- pany's products to both the wholesale and retail trade. You may, have seen our windproof lighter offer at point of sale; the "Get Out The Vote" L&M poster, which was widely distributed prior to Election Day; or the exclu- sive L&M Christmas gift pack offering a free Christmas Carol record with the purchase of two cartons of L&M. The media used in the Company's advertising pro- gram is carefully selected for each brand. We strive to reach the greatest number of potential consumers with convincing sales messages. In TV, for example, "Gun- smoke" for L&M, and "The Untouchables" for CHESTER- FIELD, consistently appear in the top ten of all television programs, according to the rating surveys. 20 TIMN 446186

0 r M, r- 'HESrtEHI, CHESTERFiELD 0 KNG 1= ILTERS Vz A. C L E. "3!' I F> III ;Fq~ ~ T H~ :7V1  RrA C L E T! P N: a ® t e x R elve .0010 - -pt E. r twMffn _ P1PE 709AC~.0 tn.sacs¢:ewr.caa TQEACCO TIMN 446187

1911-1960 TIMN 446188