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Annzfal Stockholders' Meeting T HE Annual Stockholders' Meeting will be held at 43 Park Avenue, Flemington, New Jersey, at 2:00 P.M., Monday, March 12, 1956. Proxies will be mailed to stockholders February 10, 1956. Stockholders who are unable to attend the meet- ing are urged to sign their proxy and return it promptly to the Company so that the stock of the Company will be represented as fully as possible at the meeting. TIMN 446294 L I G G E T T & .ll Y E R S -~- 0 NE 0 F

I Highli(; lit,~ 1955 Net sales ................................................$546,964,616 Profit from operations ............................ 60,134,062 Percentage of net sales ............................ 10.99% Profit before taxes .................................. 56,677,972 Income and franchise taxes .................... 29,957,000 Profit before preferred dividends............ 26,720,972 Net income after preferred dividends...... 25,259,785 Percentage of net sales ............................ 4.62 % Net income per share of common stock $6.46 Dividends paid per share of common stock .................................. $4.00 Current assets ........................................$425,252,089 Current liabilities .................................. 92,453,907 Ratio .................................................... 4.6 to 1 Funded debt .................................... °. ~... 107,250,000 Capital stock .......................................... 118, 662,125 Paid-in surplus end of year ...................... 19,364,550 Earned surplus end of year ...................... 120,861,562 (Further details on pages 14, 15, 16 and 17) Approximate number of Ntockholders.... 43,700 LIGGET T & .ll YERS ,-00~ 1954 $548,861,959 53,592,624 9.76% 47,835,364 25,634,000 22,201,364 20,740,177 3.78% $5.30 $5.00 $459,145,998 129,034,362 3.6 to 1 1 13,1)00,000 1 18,662,125 19,364,550 111,247,861 40,900 O N E O F TIMN 446296

3 f Distribution and Promotion Distribution is the keystone in the sale of "mass" merchandise to the public. Promotion creates the desire to buy, but it is of no avail if the goods advertised are not on the shelves. Liggett & Myers' products are now sold to the domestic public by almost one million four hundred thousand retail outlets from roadside stands to shopping center super markets. This width of distribution has been achieved by the unceasing efforts of our six thousand distributors and the Company's own sales force. Each year this distribution widens, paralleling population increases, area by area. Brand preferences vary from year to year as styles and tastes change, so promotion must not only be aggressive but continuous in order to reach again and again, the present and potential consumer in every corner of the United States. Almost every type of media (television, radio, newspapers, magazines, car cards and point-of-sale material) is used to keep present customers, and to attract new smokers. As distribution increases in new areas, so does promotion. Therefore, through expanding advertising, consumers in areas not previously reached by your Company's radio and TV advertising now receive sales messages on Liggett & Myers' brands. Overseas, many of your Company's products have achieved wide popu- larity. Chesterfields are now distributed in 86 countries outside of the United States. In the majority of these, L&M Filters are also sold. TIMN 446299 "OBA CCO'S i1OST RESPECTED NAMES 5 I

f a .rA ® s A ---~ ~~ - I ! LIGGETT & MYERS TOBACCO Go. INC. 630 Fifth Avenue New York 20, N. Y 45th Annual Report December 31S ;1935 r TOBACCO'S MOST RESPECTED NAMES i TIMN 446295

To the Stockholders Earnings Sales This is the 45th time that your Company has made its annual report to you. The following has been prepared to give you an overall picture of your Company's operations and financial affairs in 1955. Earnings per share of Common Stock were substantially higher than for the previous year, amounting to $25,259,785 compared with $20,740,177 for 1954. The ratio of profit from operations to net sales increased from 9.76% to 10.99% in 1955. Earnings for the year included special items of $839,184 and $1,066,124 shown separately on the Consolidated Income statement. The item of $1,066,124 represents the balance of the reserve of $4,473,163 (established in 1942 to provide for possible loss on our investment in a foreign tobacco company) after deducting the actual loss from sale of such investment in 1955. This transaction also resulted in a tax credit in an amount more than sufficient to offset any capital gains tax otherwise payable on profit from sale of land and buildings during the year. For 1955, net sales were $546,964,616 compared to $548,861,959 for the previous year-down slightly. The volume in L&M Filters increased sharply. Sales began to show a definite upturn in the third quarter. In the fourth quarter, your Company's sales showed an increase of more than 6% over the fourth quarter of 1954. 700 600 Millions This chart shows a record of the Company's sales for the past ten years. 500 400 300 200 100 0 1946 1947 1948 1949 1950 1951 1952 1953 'TOBACCO'S R1OST RESPECTED NAMES 1954 1955 TIMN 446297

Dividends Taxes Four quarterly dividends of $1.00 each per share of Common Stock were paid during the year. Effective with the year 1955, your Company reverted to its original plan of taking action with respect to extra dividends in the follow- ing January after final results for the year are known. Therefore, on January 18, 1956 an extra dividend of $1.00 per share, payable March 1, was declared. There has been no decrease in the tax burden placed on cigarettes and other tobacco products during the year just past, in fact the trend is upward. Your Company has provided $29,957,000 for Federal and State income and franchise taxes for 1955. This amounts to $7.66 per share of Common Stock - an outlay of 91 % more than the total amount of dividends declared on the Common Stock during 1955. Few people realize the immensity of the tax load incurred by a manu- facturer of tobacco products, so the following chart has been prepared to give a graphic comparison of Federal and State income taxes and franchise taxes with net income after taxes for the past eight years. 1948 1949 1950 1951 1952 1953 1954 1955 This chart shows the Federal and State Income and Franchise Taxes (dark area) compared with Net Income after Taxes (light area) 1948-1955. TIMN 446298 LIGGETT & !lI Y E R S -~ O'V F. O F 4

I Research In research lies the key to quality. This is a fundamental manufacturing philosophy of Liggett & Myers, gained through thirty-three years of leadership in the scientific study of tobacco, its growth, uses and processing. The first small project in tobacco research which started in 1922 at Duke University, has grown, in the succeeding years, into one of the most important activities of your Company. Liggett & Myers' research program centers around its Durham, N. C., laboratory which is considered to be the best in the industry. Grants to universities for tobacco research and the use of outside scientific consultants, such as Arthur D. Little Inc., further imple- ment this program. Your Company believes that through research it produces the highest quality tobacco products now being marketed. Furthermore, research has resulted in a permanent control of quality - something no other manufacturer of cigarettes has yet achieved - through the use of the amazing new Accu- Ray control. Acclz-Ray The use of Accu-Ray by Liggett & Myers represents the greatest advance in the manufacture of cigarettes in the last thirty years. Each and every Chester- field is perfectly packed . .. 14% more so than cigarettes made without Accu- Ray. As a result, they burn more evenly, have no hot spots or hard draw, and smoke milder. The Accu-Ray was developed by the Industrial Nucleonics Corporation. It is really a nuclear gauge which passes a continuous stream of electrons through the cigarette and analyzes it while it is actually being made. This nuclear stream transmits what it sees to the electronic brain which adjusts the production machinery down to millionths of an inch. Accu-Ray controls are now used by such industrial giants as: U. S. Steel, International and St. Regis Paper Companies: Goodrich, Firestone and Goodyear Rubber Companies; the Du Pont Company and a host of others. Illustrated on the next page is the Accu-Ray quality control as used by Liggett & Myers. TIMN 446300 6 LIGGETT & .11 YERS .-..~. O N E O F

I 111anageinent Changes Stockholders The Company's cigarette factories are the most modern in the industry and are air-conditioned, well-lighted and designed to guard safety and health. Cafeterias for employees provide excellent meals at very moderate prices. There was only one important change in management personnel during 1955. Milton E. Harrington, Manager of the Leaf Department, was elected a Director to fill the vacancy on the Board created by the retirement, under the Employees' Retirement Plan, of James E. Farley. There are now approximately 43,700 Common and Preferred stock- holders. This is an increase of 2800 stockholders (about 7% ). The stock of your Company is widely held, ranging from a few shares in the hands of thousands of stockholders to many hundreds of shares owned by investment groups, educational institutions, insurance companies, trusts, estates and banks. Approximately 80% of the total stock of your Company, both Common and Preferred, was voted, either by person or by proxy, at the last annual stockholders' meeting of Liggett & Myers on March 14th, 1955. ,: TIMN 446303 TOB:-1CCO'S .11 0 ST RESPECTED NAMES

fi SZ[mYYlCl'YV Net profits for the year increased by $4,519,608. A portion of this came from non-recurring items of income. The higher selling price of Chesterfield King Size cigarettes, in effect part of the year, resulted in a better profit margin on this brand. Other factors which helped were reduction in expenses by pro- viding more efficient manufacturing facilities, adoption of a direct deposit plan resulting in a quicker conversion of sales receipts into usable funds, and by working more closely with our customers. The market trend in 1955 continued toward king size and filter tip cigarettes. Following this trend, King Size Chesterfield sales continued upward and the sales of L&M more than doubled. Necessarily, the increase in the sales of king size and filter tips was made at the expense of regular size cigarettes. During the year, Liggett & Myers continued and intensified the moderni- zation program which has been underway for some time. Our products today are the best that we have ever made and we are confident that new improve- ments to come will continue to offer smokers a better product. The Management greatly appreciates the cooperation and loyal support of its stockholders and employees. January 27, 1956 TIMN 446306 12 LIGGETT & J1 Y E R S ..W.-- O N E O F

Of,icers Directors President Vice President Vice President Vice President & Treasurer Vice President & Secretary Vice President Russell M. Chenoweth Frederick J. Graeff William A. Blount Lawrence W. Bruff Benjamin F. Few Milton E. Harrington Francis H. Horan J. Camden Hundley Benjamin F. Few William A. Blount William B. Lewis, Jr. William L. Perry Zach Toms James N. Wellman Assistant Treasurer J. Bowling Anderson Assistant Secretaries Henry A. Petry Rufus H. Hosea Charles B. Morganthaler William B. Lewis, Jr. William L. Perry Eugene C. Ringler Loy D. Thompson Zach Toms James N. Wellman GENERAL COUNSEL Francis H. Horan DIRECTOR OF RESEARCH Dr. Frederick R. Darkis EXECUTIVE OFFICES 630 Fifth Avenue, New York 20, N. Y. TRANSFER AGENT Chemical Corn Exchange Bank 30 Broad St., New York 15, N. Y. AUDITOR Eugene C. Ringler REGISTRAR The First National City Bank of New York 55 Wall St., New York 15, N. Y. TIMN 446307 !'OBA CCO'S .11OST RESPECTED NAMES 13