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Liggett & Myers Tobacco Company, Inc. , . s 1959 Annual Report ,rIMN 446189

oFI'rCERS President & Chicf Erecutire Ofic'er L:recutire I ice Presi<lent & Secretr.tn• I ice President & Clutirman of Et•ecutii e Committee ! 'ic•e Presi!Ient, Sales I ice President cQ: General Counsel ! ice Presi lent, 1bInuf ccturin.,and Le!rf Treasurer Assistant Treasurer rlssist(4tt Secretaries WILLIAM A. BLUCNT ZACH TtJ1IS WILLIAM L. PERRY WILLIAM B. LEWIS, JR. FRANCIS H. HORAN LUY D. THC)JIPSON J. BO'V~LI\G ANDERSON RALPH P. MOORE RUSSELL _lI. CHENU)XETH FREDERICK J. GRAEFF Rt FL'S H. HOSEA C. GRICE JIc11ULLA:N CHARLES B. MORGENTHALER DIRECTORS Director of Research Auditor J. BOWLING ANDERSON WILLIAM A. BLOUNT LAWRENCE W. BRUFF FREDERICK R. DARKIS MILTON E. HARRINGTON FRANCIS H. HOR AN J. C aMDEN HL; NDLEY GRAYDON B. LEAKE WILLIAM B. LEXVIS, JR. WILLIAM L. PERRY LOY D. THO.lIPS4N ZACH Tn_lIS DR. FREDERICK R. DARKIS RUSSELL G. CUTTER E.recutice 0(jices 630 FIFTH AVENUE. `F.W YORK 20, N.Y. Transfer _4gent CHEMICAL BANK NEW YORK TRUST CO. 30 BROAD STREET, NEW YORK 15, N. Y. Registrar _-- TI IF: I1RS'1' N.\TIO.NA.L CITY BANK OF NEW YORK 55 \\ \LL STREET, NEW YORK 15, N. Y. TIMN 446190

Liggett & Myers Tobacco Company • I959Annual Report TABLE OF CONTENTS PAGE 2 The President's Letter 4 Highlights of Operations 5 Financial Condition 7 Capital Expenditures 8 Taxes Leaf Tobacco Products Research Advertising and Promotion Sales, Earnings, Taxes and Dividends Disposition of Total Earnings .,~ Consolidated Balance Sheet Consolidated Earnings 19 Consolidated Retained Earnings and Notes to Financial Statements 20 Opinion of Certified Public Accountants Inside Back Cover Record for Fifteen Years TIMN 446191 I

To the StockholrleYs : This 49th Annual Report of Liggett & Myers TObacco Companv presents the opera- tions and audited financial statements of the Company for the year 1959, ~~ith comparative fi-gures for the previous year. Sales «ere just slightly lower in 1959 than in the previous year, accounted for entirely by the reduced VOIUnIe Of CHESTERFIELD re2ular size cizarettes. While sates of this brand have followed the recent industry downward trend for re2ular size non-filter brands, the decline was less in 1959 than in the previous year. Sales of CHESTERFIELD king size, L & M and OASIS cigarettes continued to show an increase during the year. Net earnings for the first nine months of 1959 were approximately 6% higher than those of the corresponding period of 1958. Fourth quarter earninRs were adversely affected due to high introductory and sales promotion costs of the new DUKE OF DURH.avt brand of cigarettes, which was initially introduced in September and reached national distribution in December. As a result of this unusual expense, fourth quarter earnings declined to S1.47 per share from 52.11 per share for the fourth quarter of 1958, and earnings for the year declined from S7.60 to 57.28 per share of common stock. While it is too early to make any definite forecast as to the sales and aro%vth possibilities of DUKE OF DURHAM, the consumer acceptance of this distinctive and fine quality king size filter tip cigarette is encouraging. In most all of the foreign markets of the world, the Company'S brands of ciga- rettes are advertised and distributed through customers with %~hom %~e have had a long and highly satisfactory relationship. Export sales to these cuStOmers make an important contribution to the over-all business of the Company. TIMN 446192 -7

The total sales of ciQarettes in the United States coiuinue to increase. DurinQ the past year filter tip cigarettes showed a further gain and it is now estimated that this type of cigarette accounts for about 50°0 of the total. King size cigarettes, includin~ non-filter and filter tip, are estimated to account for about 68°„ of the total. Menthol eiaarettes continued to gain in popularity with smokers. Liggett & Myers Tobacco Company offers a variety of quality brands of cigarettes to suit the exactinQ choice of e~er_y consumer. ThrouLh research and in many other ways, the Company is constantly stri,~inQ to improve the quality of its products and to effect economies in operations wherever possible. As we face the new year and the beginning of a new decade, we are mindful of the increase taking place in the population of the country and of the tremendous growth possibilities of the economy and improvement in incomes and livina stand- ards of the people. Prospects for all industry appear very hopeful. We believe that the tobacco industry will participate fully in this expansion, and it is the aim of our Company to avail itself of every opportunity to increase its v~olume of sales and its share of the total business. Mr. Benjamin F. Few retired on November 30, 1959, as President and Director of the Company, having served the Company ably for more than forty-three years. The Directors gratefully acknowledge his long and faithful service. On behalf of the Board of Directors, I wish to express appreciation to our customers, the stockholders and employees of the Company for their loyal support and cooperation throughout the past year. February 2, 1960 R'ILLI1)I A. BLOUNT President TIMN 446193 3

Highligh.ts of Oper-atioras 1959 1958 Net Sales $554,936,026 5556,045,7I0 Earnings before taxes . 65,074,689 67,912,008 Income and franchise taxes 35,036,000 36,689,000 Earnings before preferred dividends . 30,038,689 31,223,008 Net earnings after preferred dividends . . . , . . , , 28,608,582 29,761,821 Percentage of net sales . . . . . , , , , , , , 5.16% 5.35°0 Net earnings per share of common stock $7.28 $7.60 Dividends per share of common stock . $5.75 - 55.00 Current assets . . . . . . . . . . . . . . . $365,063,763 $369,974,311 Current liabilities 32,906,832 36,920,586 Ratio . . . . . . . , , , , , 11.1to1 10.0 to 1 Funded delzt Capital stock Additional paid-in capital . Retained earnings . . Approximate number of stockholders . Annual Stockholders' Meeting The Annual Stockholders' Meeting will be held at Hotel Plaza, Journal Square, Jersey City, New Jersey, at 2:30 P.M., lue,.iav, March 29, 1960. Proxies will be mailed to stockholders February '-6. P+t,o. titO,k- holders who are unable to attend the meeting are urged to ,_,,, :,*e.r proxies and return them promptly to the Company so that i,e ,.~k of the Company will be represented as fully as possible at the rneet •,g. About Stockholders 46,800 Today your Company is owned by about 47,000 ,tock- holders. Holdings range from a few shares in the hands of thousands of stockholders to many hundreds of shares o« ned by investment groups, educational institutions, insurance companies, trusts, estates and banks. About 83% of the total common and preferred stock was voted by person or proxy at the last annual stockholders' meeting, March 31. 1959. TIMN 446194 84,250,000 90,000,000 117,854,650 118,820,150 20,211,080 19,632,691 149,168,514 143,729,281 4

t Flll CIIlCI (LL C012d1 tlOTl Net earnings for the year amounted to S30,038,689, the second highest in the Company's history. They were equal to S7.28 per common share as against S31,223,008 the previous year when earn- ings were equivalent to S7.60 per common share. Total dividends paid to shareholders during the year amounted to S2-1,015,365. In each of the years 1948 to 1958 inclusive, excepting 1955 when the date of payment of the extra dividend was chan2ed from December 1 to March 1 of the following year, four quarterly dividends of S 1.00 each and an extra dividend of S1.00, total 55.00 per share, were paid on the common stock of the Company. Commencing with the dividend pay- able June 1, 1959 the policy was adopted whereby the dividend would be paid in four equal quar- terly installments of S 1.25 per share, and the practice of paying an extra dividend after the close of the year would be discontinued. This new policy is, of course, subject to revision at any time in the future, depending upon earnings and other business factors. As a result of the foregoing change in divi- dend policy,a total of $5.75 per share of common stock was paid during the year 1959 in the amounts and on the dates indicated: (continued) Complete modernization of uur l,illin;,r. auuditing and bookkeep- ing systems has resulted in substuntial sacings to the CompanY. TIMN 446195 I

6 ~LJICLIlCl(1I C011Cht1p1L 1 larch 2 S 1.00 (('ontinued) %tarch 2 June 1 1.00 (extra) 1.25 September 1 1.25 December 1 1.35 Total S5.75 The cash position on December 31, 1959 was appreciably improN ed. Cash on hand and in banks was S7,328,?-ll, compared with S4,458,642 at the end of I958. In addition, there was a total of S-L,992,-185 invested in United States Government securities and there were no short-term borrow- ings at the year end. As average borrowings dur- in` the year were considerably less than during 1958 there «as a reduction of S l,?95,'_'50 in inter- est on bank loans. Lon-term debt was S5,750,000 lower at the end of 1959 as a result of retirement of debentures throueh operation of the Sinking Funds. In the absence of unusual developments no need for new financing is anticipated in the foreseeable future. In a step to further reduce the number of shares of non-callable 7 f preferred stock of the Company outstanding, your Management suc- ceeded in reacquiring 13,060 shares of such stock during the year. As of December 31, 1959 there was held in the treasurv a total of 29,460 shares. If"ith the adoption of a regional collection sYstem, the Compan}' has effected fcrther major sarinbs in manpou•er and interest costs. TIMN 446196

Capital E.ipeWlitures The Company's two cigarette factories are lo- cated at Durham, N. C., and Richmond, Va. In a third factory at St. Louis, Mo., pipe and chewing tobaccos are manufactured. Principal leaf tobacco processing plants and leaf tobacco stora-ges are located in Durham and Rocky Mount, i`!. C., Damille, Va., and in Lexington and Paris, Ky. The Company's major plants, as well as machin- ery and equipment, are either new or have been extensi%ely modernized in recent years. The construction of an addition to the mod- ern research laboratories in Durham, N. C., as pre~iously reported to stockholders, is well under way and is expected to be completed this summer. The program of maintaining plant and equip- ment at maximum efficiency was continued dur- inatheyear.Capitalexpendituresin 1959 amounted toyapproximately $2,500,000 or about the same as in the preVious year. No major capital expendi- tures appear necessary in the near future. Construction was undertaken during the year on an addition to the Company's Turkish tobacco processing plant located at Izmir,Turkey, at a cost of approximately 5250,000. This will en- large the handling facilities at this location and result in further economy in operations. During the past year, the Company disposed of its warehouse property in Paris, Ill., which was no longer needed. The transaction resulted jn a profit to the Company. Shown abore are tuo construction t•ietcs of the extensirc addition now being made to our laboratories in Durham, 1\'. C., designed to keep Liggett & _UYers' leadership in all phases of tobacco research. '7

Federal and State income and franchise taxes amounted to 535,036,000 in 1959 compared with $36,689,000 in 1958. Such taxes alone amounted to 58.91 per share of common stock compared with net income of S7.28 per share. Durina 1959 the excise taxes paid on the Company's products totaled S237,337,000. The method of payment of these excise taxes has im- posed an undue financial burden upon the indus- tiy for many years. The industry sought to con- vince the Treasury Department and Congress that they were entitled to a realistic deferred pay- ment system. After several years of discussion the Treasury Department finally agreed to allow the manufacturers to file returns and make payments on a twice a month basis commencing in June 1959. While the new plan protiides a small meas- ure of relief it is wholly inadequate and the indus- try hopes and expects that further adjustments will be aranted in the future. 3 While the Federal and State income and franchise taxes and the Federal excise taxes men- tioned herein constitute the major portion of the Company's tax bill, social security payments, property taxes and many other miscellaneous taxes add millions of dollars more to the total tax burden. Social Security tax rates were again in- creased, for both employer and employeg, com- mencing January 1, 1960. TIMN 446198 Federal excise taxes are based on shipments frwm our factories. Ttcice a month, the Liggett & Yvers' messenger delicers a check to the U. S. Gorernment for many millions of dollars.