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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

Greatest ' jY12pr02'enZ212t i n 30 1 ea rs B A. The electronic brain, which calculates adjustments to millionths of a degree and controls ... B. The tobacco feed box, which feeds tobacco in just the right amount into ... C. The moving cigarette paper strip; - which is rolled and sealed into the cigarette rod as it continues to pass through ... D. The Accu-Ray box with its electronic beam continuously measuring the density and distribution of the tobacco and correcting errors to one-ten millionth of a degree. TIMN 446301 ITOBA CCO'S MOST RESPECTED NAMES ~

I Factories The principal factories of Liggett & Myers are at Durham, N. C., and Richmond, Va., where , all the company's cigarettes are r;] ~- chewing tobacco brands and a "1w' t large number of smoking tobaccos are manufactured. The Durham and Richmond factories are great tourist attractions and are annually visited by thousands of people who take the guided tours. All of them comment favorably on the size, efficiency and cleanliness of your Company's man- ufacturing operations and on the evident emphasis on quality. The Company also operates mod- ern processing plants at Danville, Va.; Durham, N. C.; Lexington and Paris, Ky.; Rocky Mount, N. C.; and Water- town, Wis.-all, important tobacco cen- ters. Huge storage facilities covering hundreds of acres are located in the bright and burley tobacco-growing States. In the Near East, Liggett & Myers buys and prepares the spicy and deli- cate Turkish tobaccos used in its cigar- ette blends at its plants in Izmir and Samsun, Turkey, and Cavalla and Xanthi, Greece. Evnployees Your Company has about 10,000 employees whose interest in and rela- tionship with the Company is typified by the fact that the average length of service per employee is well over ten years. A complete benefits program for Liggett & Myers' employees has been operating for some time and includes a retirement plan, group life insurance, hospital, surgical and sickness benefits. TIMN 446302 L I G G E T T & .ll Y E R S .-00~ O N E

Spur N Cigarettes 0 Products LIGGETT & .ll YEd2S D on these pages are twenty-five of the best-known and most active of the tobacco products manufactured by your Company. Liggett & Myers has registered ~ R By.S Vff~GINIA WRA ea ,:' ~r ; SMHING TOBACCC+ TIMN 446304 O N E O F : 10

Liabilities ,tANCE SHEET DECEMBER 31, 1955 AND 1954 CZf YYen t Liabilities Funded Debt Capital Stock and Surplais 1955 1954 Notes payable to banks ................................ $ 52,000,000 $ 95,220,000 Accounts payable ........................................ 5,855,755 4,041,183 Dividend payable on preferred stock............ 365,297 365,297 Accrued interest on debentures .................... 907,812 929,687 Funded debt payable within one year.......... 5,750,000 2,000,000 Taxes payable and accrued .......................... 27,575,043 26,478,195 TOTAL CURRENT LIABILITIES.......... 92,453,907 129,034,362 25/s % Sinking Fund Debentures, $5,750,000 payable annually during the years 1957 through 1964, $23,750,000 payable in 1965, and $37,500,000 payable in 1966 Preferred stock 7% cumulative, par value $100.00 Shares - authorized 341,398, issued = 225,141, in treasury 16,400 .................. Common stock, par value $25.00 Shares - authorized 5,000,000, issued 3,911,521 .................................. Paid-in surplus ............................................ Earned surplus (see statement annexed)........ TOTAL CAPITAL STOCK AND SURPLUS TOTAL ........................................ 107,250,000 113,000,000 20,874,100 20, 874,100 97,788,025 97,788,025 19,364,550 19,364,550 120,861,562 111,247,861 258,888,237 249,274,536 $458,592,144 $491,308,898 TIMN 446309 TOB.~CCO'S 1/1OST RESPECTED Na.t11ES 15

Assets LIGGETT & MYERS TOBACCO COMPANY CONSOLIDATE 1955 1954 Czcrren t A ssets Property, Plant and Equipment - at Cost Other Assets Cash ............................................................ $ 11,652,010 $ 11.592,982 Accounts receivable, customers .................... 23,410,069 23,131.291 Accounts receivable, others .......................... 1,176,001 982,339 Leaf tobacco, at average cost ...................... 360,197,288 393,193,579 Manufactured stock and operating supplies, at average cost ........................................ 28,816,721 30,245,807 TOTAL CURRENT ASSETS ........................ 425.252,089 459,145.998 Land and buildings ...................................... 19,185,180 Machinery and equipment ............................ 20,024,589 43,823,000 41,054,224 63,008,180 61,078,8 13 Less reserves for depreciation ................ 32,374,575 32,386,362 NET PROPERTY, PLANT AND EQUIPMENT 30,633,605 28,692,451 1 compan ies .............................................. 627,004 627,004 Stocks in foreian tobacco companies, less reserve of S-1,473,163 in 1954........ 4,000 4,001 Deferred char-e~ .......................................... 2,075,445 2,839,443 Brands, trade-marks and good will .............. 1 Stocks in unconsolidated subsidiary TOTAL 01111 RAtitiFTS ............................ 2,706,450 3,470.449 Tt)r \E ............................ $458,592,144 $491,308,898 TIMN 446308 L I G G E T T & tl 1"ERS -.000"', O N E O F 14

a TOBACCO'S R1OST RESPECTED NAMES TIMN 446315

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Certificate of Certlfred Public Acco 1 f 11 tC7YZ tS HASKINS & SELLS CERTIFIED PUBLIC ACCOUNTANTS BOATMEN'S BANK BUILDING SAINT LOUIS 2 January 20, 1956 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, 1955 and the related statements of consolidated income and earned surplus 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 income and earned surplus present fairly the financial position of the companies at December 31, 1955 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. TIMN 446312 18 L I G G E T T & ,11 Y E R S __..00-- n.`"I: nF

•' Consolidated Earned Slcrplczs FOR THE YEARS ENDED DECEMBER 31, 1955 AND 1954 1955 1954 EARNED SURPLUS AT BEGINNING OF YEAR.. $111,247,861 $110,065,289 ADD Net Income for the Year ........................ 26,720,972 22.201,364 137,968,833 132,266,653 DEDUCT CASH DIVIDENDS OF $7.00 PER SHARE ON PREFERRED STOCK .................... 1,461,187 1,461,187 CASH DIVIDENDS ON COMMON STOCK $4.00 per share in 1955 and $5.00 per share in 1954 .................... 15,646,084 19,557,605 17,107,271 21,018,792 EARNED SURPLUS AT END OF YEAR (see note) ........................................ $120,861,562 $111,247,861 NOTE: Under the terms of the Indenture covering each issue of 25/s% Sinking Fund Deben_ tures $58,898,960.47 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. TOBACCO'S 1t7OST RESPECTED NA:11ES TIMN 446311 17

I Consolidated Income FOR THE YEARS ENDED DECEMBER 31, 1955 AND 1954 1955 1954 NET SALES .................................................. $546,964,616 $548,861,959 OTHER INCOME Interest and dividends received .............. 166,990 160,617 Profit from sale of land and buildings...... 839,184 - Balance of reserve after deducting loss on sale of stock in a foreign tobacco company (see page 3) ...................... 1,066,124 - Miscellaneous ........................................ 82,666 74,451 TOTAL INCOME ........................ 549,119,580 549,097,027 DEDUCTIONS Cost of goods sold, selling, administrative and general expenses 484,049,950 492,771,480 Provision for depreciation ...................... 2,780,604 2,497,855 Interest and amortization on funded debt 3,020,313 3,042,188 Interest on bank loans ............................ 2,535,541 2,925,243 Miscellaneous ........................................ 55,200 24,897 Provision for Federal income tax............ 27,275,000 23,595,000 Provision for State income and franchise taxes ................................ 2,682,000 2,039,000 TOTAL DEDUCTIONS .................. 522,398,608 526.895,663 NET INCOME FOR THE YEAR ........................ 26,720,972 22,201,364 DIVIDENDS ON PREFERRED STOCK ................ 1,461,187 1,461,187 NET INCOME APPLICABLE TO COMMON STOCK .................................... $ 25,259,785 $ 20,740,177 16 L I G G E T T & .11 YERS .~.-. OA'E OF TIMN 446310

a,„Lw~2. C.3&.1 nost one hundred brand names, and rrently makes sixty-three different ids of cigarettes, smoking and chew- tobaccos. tobaccos. Each and every one of the sixty-three 4A Red Man, Red Horse and ay ar. ® ~ocEs saRRaZti~ j~Ew OR4EAMs.LA. ~ t;WW+Jw+%-,a3- I _ ~e....«.. TIMN 446305 .''OBACCO'S :17OST RESPECTED NAMES products must conform to the highest standards of quality and workmanship. This insistence on quality is the reason why "Liggett & Myers is one of tobac- co's most respected names." The Pinkerton Tobacco Company at Toledo, Ohio, an unconsolidated sub- ~sidiary, has as ~ts principal brands: P C ® ll

it Disposition of Total Income The Company received from its customers _for goods sold and from Dividends, Interest and miscellaneous sources a total of $549,119,000 in 1955. This chart shows how it was used or set aside: V) Federal and other excise taxes...... $250,874,000 Leaf tobacco, wages, other manu- facturing costs and freight........ 186,029,000 ~. Selling, advertising, administrative, interest and other expenses...... 55,538,000 Federal income and State income and franchise taxes .................. 29,957,000 Dividends to stoel.hulders............ 17,107,000 Earnings retained for future needs 9,614,000 -U- ~ ~ _TOB:=ICCO'S .11OST Rf;Sf'l:CTED NA!ti1ES TIMN 446313 19

# Record for Fifteen Years SALES - EARNINGS - DI VIDENDS NET SALES NET INCOME APPLICABLE TO COMMON STOCK DIVIDENDS PAID ON COMMON STOCK Year Amount Amount Percent of Sales Per Share Amount Per Share 1941 $275,103,587 $16,389,273 5.96% $5.23 $15,684,695 $5.00 1942 294,351,573 14,293,355 4.86 4.56 10,979,286 3.50 1943 347,258,296 14,195,223 4.09 4.53 10,979,286 3.50 1944 374,032,971 13,332,272 3.56 4.25 10,979,286 _3.50 1945 399,212,620 13,477,648 3.38 4.30 10,979,286 3.50 1946 464,507,825 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 1948 556,506,847 27,799,934 4.99 8.86 15,684,695 5.00 1949 557,733,433 28,105,507 5.04 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*' *Calculated on the 3.911.521 shares of Common Stock outstanding at the end of the year. Per share earnings for prior years in above table calculated on the 3,136,939 shares of Common and/or Common B stock outstanding at the end of each year. '°*See DIVIDENDS on Page 4. In addition to the .tnnual div idend of $7.00 per share on its Preferred Stock, the Company has paid a substantial cash .livtdend to holders of its Common Stock in every year since its organization in 1911. TIMN 446314 20 LIGGETT & J1 Y E R S O N E 0

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