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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.

The 1959 crop of flue-cured tobacco, the sale of which was completed before the end of the year, amounted to 1,183,000,000 pounds, which quantity was about in line with the 1958 crop. The average selling price was 57.70 per pound or slightly higher than the previous year. The Government support price was 55.50 per pound for the 1959 crop. The U. S. Dept. of Agriculture has announced that the 1960 flue-cured acreage allotment will remain the same as last year. Due to opening a few days earlier, the burley markets sold approximately 90" of the 1959 crop before the end of the year. The burley crop is estimated at approximately 5?5.000,000 pounds or about 8°o more than the 1958 crop. Market prices through the end of the year averaged 60.70 per puund or about 9°0 lower than the comparable period in 1958. The support price for the 1959 burley crop was 57.2d per puund. On January 15, the U. S. Dept. of Agriculture announced the 1960 acreage allotment would be almost identical ,~ ith 1959. Our tobacco buyers cover every important tobacco mar- ket, selecting only the choicest tobaccos to meet the exactinQ standards set for all Liggett & Myers' products. TIMN 446199 9

F t - ' _ ? $ TWW 4 ~ k 'c_ ~- *: Y' E F I L" E R o CHESTER FlELD \LCHESTER Fl ELD TIMN 446200

>f the' manl• cigarette, smoking, and cheu•ing tobacco procG,- -• •.••-•,nufactured b}• .iggett & _1Iti•ers, those shown above are the best known anul - ~ 1. It conforms to_ 'te Ligtaett & Myers' high standard of excellence designed t,, ~t ;••piality leader in s respective fzeld. The Pinkerton Tobacco Compan}-, an uncun,i,ioGrn -r` •, %-idiarti• of Liggett Myers, manufactures as their principal brands Red Man. li ol Il~ r rnd PaY Car. ~ vr ~ ot Duke TIMN 446201 ll 1

12 The Company has been a pioneer and leader in the field of tobacco research for more than 40 years, and has expanded its program during the year by the addition of personnel and new equipment. The construction of the new addition to the research laboratories in Durhum, North Carolina, expected to be completed within a fe~~ months, will provide greatly expanded facilities for con- tinued developments in the research field. The Company's research program has contrihu<<•1 materially to new and improved products. Also nian~ improvements in the efficiency and economy of factor,, operation are constantly being developed by this de- partment of the Company. Basic studies of tobacco and tobacco products are bein2 pursued vigorously in an effort to increase our knowledge of this subject. The research department and the leaf buying organization work hand in hand in the testing of new crops of tobacco and purchasing the kind of leaf so necessary to the pro- ,Iuction of quality products. I n addition to the efforts of our own research de- rtment, the Company makes grants to universities and uther outside scientific organizations for major research. TIMN 446202

AdL'ertising and Promotion HERES A CHESfII7FIQD EXCUISNE The Big Clean T of top-tobacco e '4 - ...everypeiffir- by top-porosity BEST TASTING SMOKE IN THE U.S.A.! One menrhol cigareae has m raem best- and that', Oasl,' TIMN 446203 13 Several new brands of cigarettes were introduced by the industry in 1959, adding to a previous long list, and resulting in even more competition for the established brands. It therefore became more necessary than ever for the Company to intensify its promotional activities and to use every prac- ticable means of advertising and sales promotion to convincingly bring the Company's brands of cigarettes to the favorable attention of smokers. Every proven medium of advertising was used to promote the Company's products. Wide use was made of television and radio, ma`azines and newspapers, special sports events, outdoor sians, and point-oP sale display advertising. ~ Television continued to be the larQest me- dium used in the Company's over-all advertising program. Television programs currently being sponsored are THE REBEL, THE ALASKANS, AD- VENTURES IN PARADISE, LARAMIE, THE UN- TOUCHABLES, HOTEL DE PAREE, BLACK SAD- DLE, BONANZA, and GUNSMOKE. Experienced salesmen supplement the Com- pany's advertising program by regularly visiting jobbers and retail dealers throughout the coun- try. They render service wherever possible to the trade in stockiniz, distributing and selling the Company's products. Wherever tobacco prod- ucts are sold, they are there to see that the Com- pany's brands are well displayed. In addition, the salesmen engage in consumer sampling and spe- cial promotion plans to gain new consumers. Liggett & Myers salesmen are proud to promote their Company's products for they know they are of best quality and made according to the highest,, standards of manufacture. ~

Sales Net sales for 1959 were 5554,936,026, compared to $556,045,710 for thr previous year, representing a reduction of $1,109;68-l or less than 2/10ths of 1%. This slight decline tG.i S due to reduced volume of CHESTERFIELD regular size cigarettes. Sales of L & M, CHESTERFIELD king size and OASIS ciga- rettes were higher in 1959.y The accompanying chart gives comparative net sales figures for the past seven years. 0 &9. 1953 1954 1955 Earnings Net earnings for the year were $30,038,689, the second highest in the history of the Company. They were equivalent to $7.28 per share of common stock compared with $7.60 per share in 1958. The ratio of net earnings applicable to the common stock declined from 5.35% in 1958 to 5.16% in Millions 32 1959. 24 The net earnings for the past seven years are shown on this graph. Taxes The tax burden for the past year remained high. The provision for Federal and State income and franchise taxes amounted to $35,036,000. This fig- ure alone is equivalent to $8.91 per share of com- mon stock. This chart shows the Federal and State income and franchise taxes (dark area) compared with net income after taxes (light area) 1953-1959. 1953 1954 20 1955 .0 4 0 M ! O ~ M M ^ N 1 ~ N iJ r cli 30 28 26 22 Millions Dividends 25 In 1959 dividends paid on the common stock amounted to $22,585,258 compared with 20 $19,570,955 paid in 1958. This increase resulted from the transition to a regular $1.25 quarterly 15 rate per share, which became effective with the June 1, 1959 payment. There was declared on 10 January 20, 1960 the usual quarterly dividend of $1.25 per share, payable March 1, 1960. 5 This graph shows the amounts paid in dividends on the common stock during the past seven years. 0 1953 1954 0 0 C.o o`$ ~ o a' - LrT .~ --- ~ 00 p Q) n - n n 1956 1957 1958 1959 1956 1957 1958 1959 00 N 99 N N 1955 1956 1957 1958 1959 14 TIMN 446204

Disposition of Total Eccrrzin.gs for 1959 The following tabulation shows how the Company used or set aside a total of S555,757,000 received by it from its customers for -oods sold and from dividends, interest and miscellaneous sources during 1959: Leaf tobacco, wages, other manufacturing costs and freight 181,085,000 Dividends Total $555,757,000 TIMN 446205 15

Liggett & Hyers Tobacco Com pcrjaV CONSOLIDATED BALANCE SHEI ASSETS CURRENT ASSETS: 1959 1958 Cash . . $ 7,328,241 $ 4,458,642 U. S. Government securities-at cost (quoted market value, 54,99'_,485) . . . . . . . . 4,992,485 - - - Accounts receivable, customers . . . . . . . . . 21,189,902 23,095,-151 Accounts receivable, others . . . . . . . . . . . 1,159,595 1,103,323 Leaf tobacco, at averaQe cost . . . . . . . , . . 292,005,364 306,965,046 Manufactured stock and operating supplies, at average cost . 38,388,176 34,352,9-19 TOTAL CURRENT ASSETS . . . . . . . , . 365,063,763 369,974,311 PROPERTY, PLANT AND EQUIPMENT-AT COST: Land and buildings . . . . . . . . . . . . . 20,229,351 19,658,449 Machinery and equipment . . . . . . . . . , . 57,361,691 55,461,969 Total . . . . . . . . . . . . . . 77,591,042 75,1 20,418 Less accumulated depreciation . . . . , . . . 41,390,536 39,538,898 NET PROPERTY, PLANT AND EQUIPMENT 36,200,506 35,581,520 OTHER ASSETS: Brands, trade-marks and good will . . . . . . . . s t s 1 1 Investments in unconsolidated subsidiary companies, at cost. 887,004 863,004 Investment in foreign tobacco company, at cost .. . 4,000 4,000 Foreign currency deposits subject to withdrawal restrictions. . 1,025,076 1,0-10,643 Prepaid expenses and deferred charges . . . . . . . 1,210,726 1,639,229 TOTAL OTHER ASSETS . . . . . . . . . . 3,126,807 3.5-I6,877 TOTAL . . . . . . . . . , . . . $404,391,076 I S409,102,708 16 TIMN 446206

OF DECEMBER 31 LIABILITIES CURRENT LIABILITIES: Accounts payable . . . . . . . . . . . . . Notes payable to banks . . . . . . . . . . . . Dividend payable on preferred stock . . . . . . . . Accrued interest on debentures . . . . . . . . . . Funded debt payable within one year (less, for 1958, $1,294,000 of debentures redeemed and held by Trustee) . . . . Taxes payable and accrued . . . . . . . . . . TOTAL CURRENT LIABILITIES . . . . _. FUNDED DEBT: 25/$°o Sinking Fund Debentures, $5,750,000 payable annually during the years 1961 through 1964, $23,750,000 payable in 1965, and 537,500,000 payable in 1966 . . . . . . STOCKHOLDERS' EQUITY: Preferred stock 7% cumulative, par value $100-authorized, 341,398 shares; issued, 225,141 shares; in treasury, 1959, 29,460 shares, and 1958, 16,400 shares ...... Common stock, par value $25-authorized, 5,000,000 shares; issued, 1959, 3,931,462 shares, and 1958, 3,917,842 shares (Note 1) . . . . . . . . . . . . . . . Paid-in capital in excess of par values of capital stocks (Note 2). Retained earnings (Note 3) . . . . . . . . . . . TOTAL STOCKHOLDERS' EQUITY . TOTAL . . 1959 1958 $ 3,295,512 $ 4,575,553 - 3,000,000 345,067 365,?97 721,875 759,867 5,750,000 4,456,000 22,794,378 23.763,869 32,906,832 36,920,586 84,250,000 90,000,000 19,568,100 20,874,100 e< d!' 98,286,550 97,946,050 20,211,080 19,632,691 149,168,514 143,729,'_81 287,234,244 282.182,122 $404,391,076 $409,103,708 TIMN 446207 17

Liggett &- -l tVers Tobacco Co1npccrz. ti- St(6tf?772e1t t Uf Co7zsolidatecl Eenairz-bS (fr rears encled Decentber 31) NET SALES . OTHER EARNINGS: lnterest and dividends received . . . . . . . . . . Profit from sale of land and buildines . . . . . . . . Profit from redemption of sinking fund debentures . . . . Miscellaneous . . . . . . . . . . . . . . TOTAL EARNINGS. COSTS AND EXPENSES: Cost of aoods sold, selling, administrative and c7eneral expenses . Pro` ision for depreciation . . . . . . . . . . . Interest and amortization on funded debt . . . . . . Interest on bank loans . . . . . . . . . . . . Miscellaneous . . . . . . . . . . . . . . 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 . 1959 1958 $554,936,026 S556.0-15.710 370,848 275, 865 100,547 - - 97,073 349,897 69,998 555,757,318 556.488.646 484,407,387 -180,839,626 3,705,075 3,707,895 2,466,176 2,641,303 76,333 1,371,583 27,658 16,231 32,350,000 34,100,000 2,686,000 2,589,000 525,718,629 525,265,638 30,038,689 31. 223,008 1,430,107 1,-161,187 $ 28,608,582 S 29,761,821 TIMN 446208

, tC6tE'1'l2C'7lt f)f ~~,1.711sOlIClE[~fF'(1 R2tCl•LIlG'C ~C~ L~CG7"I1L72~~;5 ffor i~c~trs ended Dc~eeniber 31) 1959 1958 BALANCE AT BEGINNING OF YEAR . $143,729,281 S133,535,415 ADD-Net earninQs_ for the year 30,038,689 31.223.008 TOTAL . . . . . . . . . . . . . 173,767,970 ! 6-T,-6 1.-123 DEDUCT: Cash dividends of S7 per share on preferred stock .. .. 1,430,107 1,461,187 Cash di~ idends of S5.75 per share for 1959, and S5 per share for 1958, on common stock . . . . . . . . . . 22,585,258 19.5 -'0.955 Total dividends . . . . . . . . . . . . . 24,015,365 ,1.0311-1'_ Excess of cost o\er par value of preferred stock reacquired . 584,091 TOTA L . . . . . . . . . . . 24,599,456 1 1.03?.1-12 BALANCE AT END OF YEAR (Note 3) . . . . . . . . $149,168,514 S 1-13.729,251 Notes to Financial Statements-December 31, 1959 1. At January 1, 1959, there were outstanding op- tions granted under the Incentive Stock Option Plan to officers and key employees to purchase, subject to certain limitations, 52,979 shares of the Company's common stock, and 60,700 shares «ere reserved for the granting of additional options. During 1959, options for 1,000 shares were granted for an aggregate option price of $89,313, and op- tions for 13,620 shares "ere exercised for an a,-re- gate option price of $918,889. At December ? I. 1959, options were outstanding with respect ro 40,359 shares having an aggregate option price ,t $2,759,195, and 59,700 shares were reserved for c granting of additional options on or before M., , 31, 1961. In accordance with the Plan, option i•, .. 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 1959 by 5578,389,representing the excess of sales price over par value of common stock sold to officers and employees under the In- centi%e Stock Option Plan. 3. 4`nder the terms of the Indenture covering the 2',s"„ Sinking Fund Debentures, $60,282,541 of rri.uned earnings is restricted as to payment ofcash t% i.!ends on common stock. This limitation does , wl-lv to stock dividends on common stock, nor .•trict payment of dividends on preferred TIMN 446209 ,Ci

Opinion of Certifzecl Public Accoun tants HASKINS & SELLS CERTIFIED PUBLIC ACCOUNTANTS To the Directors and Stockholders of Liggett & Myers Tobacco Company: TWO BROADWAY NEW YORK 4 We have examined the consolidated balance sheet of Liggett & Myers Tobacco Company and its wholly-owned consolidated subsidiary as of December 31, 1959 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, 1959 and the results of their operations for the year then ended, in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year. January 22, 1960 TIMN 446210 20

RecorLd, f'or FifteC.'-li Iern-s • S.-11.ES • E_01-NINGti • D1VIDE\DS- .i f•t .S•Iles ,N'r,t Ec7rntlt;s .-1/,f,licuhle to Curnmort Stock Diz'i<lr•nrls Paicl nn C.',irnrnuu .Stock YEAR AMOUNT .\NIOU\"I' PERC'C.NT OF S.\LI S PI:R tiH.\RE \MnL'\T PGR SH.\R[: 1945 S399.212,620 S 13,-177,648 3.38 c.-C S4.30 $10,979,286 S3.50 1946 46-1.507,825 16,907,740 3.64 5.39 12,547,756 4.00 1947 513,771,422 21,439,504 4.17 6.83 14,116,225 4.50 19-18 556,506,847 27,799,934 4.99 8.86 15,684 695 5.00 1949 557,733,433 28,107,507 5.0-1 7.18 18,783,023 5.00 1950 530,547,285 27,597,044 5.20 7.05 19,557,605 5.00 1951 539,947,406 20,292,047 3,76 5.19 19,557, 605 5.00 1952 603,080,876 19, 987, 339 3.31 5.11 19,557, 605 5.00 1953_ 586,498,727 21,517,389 3.67 5.50 19,557,605 5.00 1954 548,861,959 20,740,177 3.78 5.30 19,557,605 5.00 1955 546,964,616 25,259,785 4.62 6.46 15,646,084 4.00* 1956 564,965,808 _ 24,989,563 4.42 6.39 19,561,325 5.00 1957 570,384,860 26,812,420 4.70 6.85 19,563,805 5.00 1958 556,045,710 29,761,821 5.35 7.60 19,570,955 5.00 1959 554,936,026 28,608,582 5.16 7.28 s 22,585,258 5.-5"* *Represents four quarterly payments of S1.00 each. The payment of the extra dividend of S 1.00 per share was deferred until March 1, 1956. Similar action was followed through March 1, 1959. **Commencing June 1, 1959 the policy ~,Nas adupted of paying regular quarterly dividends of $1.25 per share. ' Earnings per share are based on the numher of shares of Common Stock (including Common B Stock prior to 1949) outstandin; .rt the en.l of each year. In addition to the annual dividend o i ~' oo ;•cr ,.rr< on its Preferred Stock, the Company has paid a substantial cash dividend to inoi,!o- .• tommon Stock in every year since its organization in 1911. TIMN 446211

i One of Tobacco's Most Respected NamesMSZ.~,1911-1959 TIMN 446212