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I Net earnings for 1956 amounted to $26,450,750 compared to $26,720,972 for the previous year. In making this comparison it should be pointed out that net earnings for 1955 included a total of $1,905,308 of non-recurring items, as explained in Note 3 on Paga 14 of this report. The ratio of profit from operations to net sales increased from 10.99% to 11.19% in 1956x. The net earnings for the~"pr~st ten years are shown on the opposite page. Net sales increased substantially during the past year- $564,965,808 in 1956 compared to $546,964,616 for 1955. The major portion of this gain was due to the increasing popularity of L&M Filters. The chart shows a record of the Company's sales for the past ten years. Effective with the year 1955, your Company reverted to its original plan of taking action with respect to extra dividends in the following January after final results for the year are known. In 1956 four quarterly dividends of $1.00 each per share of Common Stock were paid in addition to an extra dividend of $1.00 per share which was paid March 1. In line with this policy there was declared on January 16, 1957 an extra dividend of $1.00 per share, payable March 1, 1957. The amounts paid in dividends on the Common Stock during the past ten years are shown opposite. The tax burden placed on cigarettes and other tobacco products continued to increase during the past year. The provision made by your Company for Federal and State income and franchise taxes for 1956 amounted to $31,916,000. This alone is equivalent to about $8.16 per share of Common Stock. The chart to the left gives a graphic comparison of Federal and State income taxes and franchise taxes (dark area) with net income after taxes (light area) for the past eight years. TOTAL INCOME FOR 1956 This chart shows how the Company used or set aside a total of $565,244,000 received by it from its customers for goods sold and from dividends, interest and miscellaneous sources during 1956. r. .rrrll I I_J III I II111 1 I11 1 111111 I 111 1 IIII11 I III I IIli1 111 Federal and other excise taxes Leaf tobacco, wages, other manufacturing costs and freight i 1 Ur1111 1 ~n 1 ', w111I I I III 1 ~TAll $256,515,000 Selling, advertising, administrative, interest and other expenses Federal income and State income and franchise taxes Dividends to stockholders Earnings retained for future needs W W lll 1111111 I III 1 1111111 1 11I 1 1111111 1 III 1 111I1 1 III 1 Illl t l I Itl 11111 I I III mr r r r ni ml t l 1 III (J11111 1 III Iu l 1 1 I 111 61,889,000 31,916,000 21,022,000 I t 1 111 1 5,428,000 TIMN 446279 w W 9

3 Liggett & Myers Tobacco Company Consolidai 0 ASSETS CURRENT ASSETS Cash ........................................... Accounts receivable, customers ................. Accounts receivable, others .................... Leaf tobacco, at average cost .................. Manufactured stock and operating supplies, at average cost .............................. TOTAL CURRENT ASSETS ......................... PROPERTY, PLANT AND EQUIPMENT - AT COST Land and buildings ............................. Machinery and equipment ........................ Total ................................... Less reserves for depreciation ............... NET PROPERTY, PLANT AND EQUIPMENT............ OTHER ASSETS BranlL,_trade-marks and good will ............ 4 Ats in unconsolidated subsidiary ies, at.cost ........................... InvegGent in foreign tobacco company, at cost ...................................... Deferred charges............................... TOTAL OTHER ASSETS ........................... TOTAL ................................... 1956 1955 $ 11,635,118 $ 11,652,010 22,578,754 23,410,069 1,407,961 1,176,001 372,484,364 360,197,288 36,586,972 28,816,721 444,693,169 425,252,089 19,244,017 19,185,180 48,601,413 43,823,000 67,845,430 63,008,180 34,178,235 32,374,575 33,667,195 30,633,605 1 1 736,004 627,004 4,000 4,000 2,570,967 2,075,445 3,310,972 2,706,450 $481,671,336 $458,592,144 TIMN 446280 10

alance Sheet •, December 31, 1956 and 1955 . LIABILITIES CURRENT LIABILITIES 1956 1955 Notes payable to banks ......................... $ 78,000,000 $ 52,000,000 Accounts payable ............................... 4,468,956 5,855,755 Dividend payable on preferred stock............ 365,297 365,297 Accrued interest on debentures ................. 861,328 907,812 Funded debt payable within one year ............ 5,750,000 5,750,000 Taxes payable and accrued ...................... 26,325,425 27,575,043 TOTAL CURRENT LIABILITIES .................... 115,771,006 92,453,907 FUNDED DEBT 21% Sinking Fund Debentures, $5,750,000 payable annually during the years 1958 through 1964, $23,750,000 payable in 1965, and $37,500,000 payable in 1966 .............. 101,500,000 107,250,000 CAPITAL STOCK AND SURPLUS Preferred stock 7% cumulative, par value $100.00 Shares -- authorized, 341,398; issued, 225,141, in treasury, 16,400 ................. A0,874,100 20,874,100 Common par value $25.00 Share °t~uthorized, 5,000,000; issued, 1956, 3,912~ ,1, and 1955, 3,911,521 (Note 1)...... 97,819,025 97,788,025 Paid-in surplus ................................ 19,417,405 19,364,550 Earned surplus (Note 2) ........................ 126,289,800 120,861,562 TOTAL CAPITAL STOCK AND SURPLUS .............. 264,400,330 258,888,237 TOTAL ................................... $481,671,336. $458,592,144 TIMN 446281 11

CONSOLIDATED INCOME for the years ended December 31, 1956 and 1955 ; 1956 1955 NET SALES ......................................... $564,965,808 $546,964,616 OTHER INCOME Interest and dividends received ................ 174,040 166,990 Profit from sale of land and buildings ......... 839,184 Balance of reserve after deducting loss on sale of stock in a foreign tobacco company ...................................... 1,066,124 Miscellaneous .................................. 104,687 82,666 TOTAL INCOME (Note 3) ........................ 565,244,535 . 549,119,580 DEDUCTIONS Cost of goods sold, selling, administrative and general expenses .......... 498,601,231 484,049,950 Provision for depreciation ..................... 3,138,132 2,780,604 Interest and amortization on funded debt ....... 2,954,629 3,020,313 Interest on bank loans ......................... 2,113,414 2,535,541 Miscellaneous .................................. 70,379 55,200 Provision for Federal income tax ............... A 29,165,000 27,275,000 .~ ~ Provi~r for State income and fra~&e taxes .............................. 2,751,000 2,682,000 . TO~AIs DEDUCTIONS ........................... 538,793,785 522,398,608 NET INCOME FOR THE YEAR ........................... 26,450,750 26,720,972 DIVIDENDS ON PREFERRED STOCK ...................... 1,461,187- 1,461,187 NET INCOME APPLICABLE TO COMMON STOCK ................................... S 24,989,563 S 25,259,785 `TIMN 446282 .. 12

CONSOLIDATED SURPLUS for the years ended December 31, 1956 and 1955 EARNED SURPLUS 1956 1955 EARNED SURPLUS AT BEGINNING OF YEAR ............... $120,861,562 $111,247,861 ADD - Net income for the year .................... 26,450,750 26,720,972 TOTAL ......................... 147,312,312 137,968,833 DEDUCT Cash dividends of $7.00 per share on preferred stock .......................... 1,461,187 1,461,187 Cash dividends on common stock $5.00 per share in 1956 and $4.00 per share in 1955 ..................... 19,561,325 15,646,084 TOTAL ......................... 21,022,512 17,107,271 EARNED SURPLUS AT END OF YEAR (Note 2) ............ $126,289,800 $120,861,562 PAID-IN SURPLUS 1956 1955 PAID-IN SURPMAT BEGINNING OF YEAR .............. $ 19,364,550 $ 19,364,550 ADD - Excess of sales price over par value of common stock sold to officers and employees (Note 1) ................ 52,855 PAID-IN SURPLUS AT END OF YEAR .................... $ 19,417,405 $ 19,364,550 13

NOTES TO FINANCIAL STATEMENTS 1. During 1956 options were granted, under the Incentive Stock f~tion Plan approved by stock- holders March 12, 1956, to 36 officers and key employees to purchase, subject to certain limita- tions, an aggregate of 56,700 shares of the Company's common stock for an aggregate option price of $3,824,338 (representing the closing quoted market value on the dates the options were granted). Options for 1,240 shares having an aggregate option price of $83,855 were exercised during 1956, and options for the remaining 55,460 shares were outstanding at December 31, 1956. Options for an additional 63,300 shares may be granted on or before March 31, 1961. 2. Under the terms of the Indenture covering the 2%% Sinking Fund Debentures $60,282,541 of earned surplus is restricted as to payment of cash dividends on common stock. This limitation does not apply to stock dividends on common stock, nor does it restrict payment of dividends on preferred stock. 3. Earnings for the year 1955 included non- recurring items of $839,184 and $1,066,124, the latter amount representing the balance of the reserve of $4,473,163 (established in 1942 to provide for possible loss on investment in a foreign tobacco company) after deducting the actual loss from sale of such investment in 1955. ACCOUNTANTS' CERTIFICATE HASKINS & SELLS CERTIFIED PUBLIC ACCOUNTANTS 67 BROAD STREET 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 subsidiary as of December 31, 1956 and the related statements of consolidated in- come and surplus for the year then ended. Our examination was made in accordance with gener- ally accepted auditi~ standards, and accord- ingly 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 in- come and surplus present fairly the financial position of the companies at December 31, 1956 and the results of their operations for the year then ended, in, conformity with generally ac- cepted accounting principles applied on a basis consistent with that of the preceding year. January 21, 1957 TIMN 446283

PACKAGING THE CIGARETTES Cigarettes travel from the making machines by conveyor to long rows of packaging machines. Here, billions of Chesterfields and L & M's, and other Liggett & Myers brands are packaged to meet the world- wide demand for our fine products. In one simultaneous operation the cigarettes are inspected, counted, wrapped with foil, inserted into the package, tax stamped, and sealed in its moisture-proof cellophane jacket to keep it factory fresh. Skilled operators watch the process every step of the way. Forming machines assemble flat printed sheets into finished cartons. These travel by belt past unbelievably deft operators, who with two quick motions fill them with packages of cigarettes. At this point the cartons are inspected with special mirrors and packed into the familiar 60-carton shipping container. SHIPPING It is in the shipping room that the visitor fully realizes the tremendous scope of the Liggett & Myers Tobacco Company opera- tion. Here, almost as fast as they can be placed at the loading docks, freight cars and huge tractor-trailer trucks are loaded with Liggett & Myers brands to start their way across the world. TIMN 446284 15

LIFE ® SIR WINSTON CHURCHILL HE RITES OF HENRY VIII, A WILY KING, AND OF HIS ROMANTIC MISADVENTURES TY ~ ~ 0 0 ' ~ ~` ~. I i~ t~~I ~~LY .~ ME~~Cr~N ~W~. ~' t E PLIGHT OF THE JEWS IN SOVIET RUSSIA Poi Saw~rr~ ~UARC7TE5 0 a 0 o gum ~ /HO,~tis lONGINES lI~!'UCy 'solatif (~"Eo, ~ REGULAR & KING SIZE . ItwA 8 K L Y N ® &-,ga Proposed Parking Changes OIIQ9IOD Tabled by SC Last Night 15,110YEYKR22,1956 fikeatI1111M More than 1% million retail outlets in the United States carry Liggett & Myers tobacco products, in addition to hundreds of thousands overseas. This mass distribution, which is the vital factor in the sales success of the products made by your Company, has been achieved by the combined efforts of our 6,000 distributors, plus our own sales force. The majority of smokers today prefer stand- ard size cigarettes. Others like King Size. Chesterfield gives you both sizes. L & M Filters is now the first to give smokers their choice of a package or a box. TIMN 446285 SQUAREffJOURNAL Urtober 6. 1956 • /.;r rht• Saturda, 1:,<,I,ing The Case for Zhe Lawrence ~~~ayna 1 1 I I ~ ~ ~ 1 ~ 1 ~ Illustrated above are some i 'frames from the Chesterfield TV commercial "Couple In A ~ Crowd", which you have prob- ~ ably seen on your TV screen. ' ...--------- J F'OR LIGGETT & MYERS TV COMMERCIALS SPONSOR and ADVERTISING AGE, two of the advertising industry's leading publica- tions, selected Chesterfield commercials as among the 10 best for all products in 1956. L&M commercials were also selected by SPONSOR. The ""° `aw Stassen Praises ~ ~ The Republicans; Upholds Record DISTRIBUTION Al

) SALE S PROMOTION Our current promotion of King Size Chesterfields and L & M Filters is in line with the continuing consumer trend toward King Size and Filter Tip cigarettes. This promotion includes extensive newspaper, magazine, tele- vision, radio, car card and outdoor advertising. Point-of-sale advertising includes posters, displays, carton and package racks, counter displays, shelf strips and many other items. From coast to coast every working day, Liggett & Myers service- men visit retail outlets, promoting the sale of the Company's products in every possible way. Whenever you see a poster or display for Chesterfield or L & M Cigarettes, you can be sure that one of your Company's servicemen has been there, to help sell more of our fine tobacco products. FILTr•ut - - - -~~=w~ -..,. ! rf !d ! tAf tk TIlVIN 446286 17

V RE SEARCH More than 35 years ago (1920), your Company realized that through continuous research, the qual- ity of tobacco products could not only be con- trolled, but raised to a point of unmatched excellence. Today, such quality in Liggett & Myers products is an accomplished fact. Through study of our own and competitive products, through analyses of thou- sands of pounds of tobacco, your Company's prod- ucts enjoy the benefits of the many improvements which have been made in the growing and proc- essing of tobacco. Liggett & Myers Research Program is centered in its Durham, N. C. laboratory, considered the finest in the industry. Working closely with our modern factories, these laboratories make constant quality tests to make sure Liggett & Myers tobacco products measure up to the most exacting standards. The research program is further implemented by grants to universities for tobacco research and the use of outside scientific organizations, including Arthur D. Little, Inc., for major research programs. TIMN 446287