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Contents 2 Highlights 3 Letter to Shareholders 6 Marketing 10 International 11 Research 11 Leaf 12 Manufacturing 13 Diversification 14 Good Will Abroad 16 For the Future 17 Financial Review 18 Charts 19 Consolidated Earnings 20 Consolidated Balance Sheet 22 Notes to Financial Statements 23 Ten Year Financial Comparison 24 Lorillard Directors and Officers The Cover The ancient castle in Montbeliard, France, where P. Lorillard Company's founder was born, symbolizes both our rich heritage from the past and the opportunities of the future in the world market place. The castle's great hall, restored by Lorillard as part of its international relations program (see page 14), is now a museum known as the Salle Lorillard. Opposite Page P. Lorillard Company literally circles the globe with sate of its products in more than 100 countries of the Free World, production of Lorillard brands by licensees in 12 countries, and direct manufacturing ventures in Europe and the Far East. 6s4tooo0 1964 Annual Report Annual Meeting The Annual Meeting of Lorillard shareholders and Proxy will be held on April 6, 1965, at the Americana Hotel in New York City. Meeting time will be 2:00 P.M. Notice of the Meeting, along with proxy and proxy statement, is being mailed to you under separate cover. The proxy is your way to approve or disapprove of Management's stewardship, and your vote is important, whether it be for five or 5,000 shares. If you are unable to attend the Annual Meeting, please sign and return your proxy before you put it aside. It will let us know of your continued interest.

and Subsidiary Companies Financial Highlights 1964 1963 Sales ...................... $466,773,167 $516,144,614 Net Earnings ............... 25,330,410 27,918,457 ~ ~" Results per Common Share: Net Earnings ........ Dividends ......... Taxes ................. Shareholders' Equity .... 3.77 2.50 33.72 27.95 4.14 2.47'/2 38.38 26.92 ~ Current Assets ............. 290,479,638 291,807,246 ~ .J Current Liabilities ........... 79,690,577 84,437,572 4 . ~ W k' C't 1 or mg api a .. .. . . . 210 789 061 . . 207 369 674 . . Long-Term Debt ............ 66,235,000 67,365,000 Shareholders' Equity ........ 192,226,031 186,816,458 Number of Shareholders ..... 44,600 42,649 Number of Employees ....... 6,488 6,664 6S4T0000 2

Fel%w Shareholders: President Morgan J. Cramer (right) and Executive Vice President for Operations J. Edgar Bennett review 1964 results and discuss plans for 1965. Q94tao0a The year 1964 was perhaps the most discon- certing in P. Lorillard Company's 205 year history. Starting with the Report of the Ad- visory Committee to the Surgeon General of the United States on Smoking and Health in January, it was a period marked by consum- er confusion, Congressional and Govern- ment hearings, industry-imposed cigarette advertising restrictions and anti-cigarette campaigns. Cigarette sales reacted sharply, with the greatest impact coming in the first six months. As the year wore on, the situa- tion began to improve, the down curve re- versed itself, and sales started to march up- ward again. Nonetheless, total sales de- clined from last year's record levels, and earnings along with them. Sales were $466,773,167 compared with the all-time high of $516,,144,614 recorded in 1963. Net earnings were re $25,330,410 or $3.77 per common share, versus $27,918,457 or $4.14 per common share for the earlier year. Two-fold goal Since it was obvious from the beginning that 1964 would be an unpredictable period, P. Lorillard Company set itself a two-fold goal: First, to meet and resolve the day-to- day problems as rapidly, decisively and effectively as circumstances would permit; and, second, to prepare a solid base for fu- ture operations in the new climate engen- dered by the Surgeon General's Report. In this new climate, many Americans shifted their smoking habits and allegiances, and non-cigarette tobacco products enjoyed an unprecedented sales spurt. As the dominant producer of little cigars, Lorillard benefited from this strengthened consumer demand and moved immediately to capitalize on it still further: We introduced a new fiiter-tipped little cigar called Omega, as a companion to our best-selling Madison and Between The Acts. In the field of regular cigars, we introduced Erik, a unique small cigar and the first with a built-in filter. Both Omega and Erik took off strongly and have, we feel, excellent potential. Overseas, our operations continued to prosper and demand for our products inter- nationally continues to expand at an emi- nently satisfactory rate, well ahead of that for the industry as a whole. Here again, Man- agement strengthened operations and dur- ing the year our export sales set a new rec- ord; we added a new licensee in Australia to produce Kent for sale throughout that con- tinent; we expanded P. Lorillard s.a.r.l. which produces Kent and Newport in Luxembourg for the Common Market countries; and we purchased a half interest in a large Hong Kong cigarette manufacturer to supply the fast-growing markets in Southeast Asia, Africa and the Middle East. New Ventures This was also the year in which Lorillard's diversification efforts moved into high gear 3

Executive Vice President for Sales and Advertising Manuel Ye/len (left) makes regular trips into the field to view Lorillard operations at first hand; here Inspects typical supermarket display of Lorillard brands. t94toooa and late in December we took steps to enter the booming pet food business with execu- tion of an agreement to acquire the country's Number Two producer of canned cat food, Usen Canning Company. As a rapidly grow- ing company in a new growth industry, Usen -which produces the Tabby and Three Little Kittens brands - amply meets our primary requirement for acquisition: Its products have a two-way advantage in that they can contribute to our profits while we contribute to their sa/es. Other attractive and potentially profitable situations are now being considered and we anticipate additional diversification and ac- quisition moves in the future. In our cigarette operations, the last part of the year was measurably better than the first -Kent sales turned upward, Newport actu- ally outsold the same months last year, and Spring ended 1964 with a net gain. To im-e prove sales, we backed our brands with new effective sales promotional devices and de- veloped ad campaigns that, within the limits and restrictions of the Industry Advertising Code, are strong and effective. We continue to pursue unflaggingly the scientific road to better and better filters and during 1964 our Research Department found new ways to improve our cigarette brands. New scientific findings indicate further im- provements in 1965. As the pioneer in the field of filter development, Lorillard believes in filter cigarettes, believes in their future and will continue to honor its commitment to the smoker to produce the very best cigarettes that can be made. Organizational Improvement In the last ten years, our business has grown appreciably-saies have more than doubled, earnings have more than tripled, and dividends have almost quadrupled. To fill the gaps created by the new breadth and dimension of our business, and to position us to operate most effectively in the post- Surgeon General's Report era, during 1964 the following steps were taken to restructure our organizational set-up for maximum effectiveness: Three senior executives - given the new title of Executive Vice President-were charged, respectively, with overall responsi- bility for: Operations (Manufacturing, Research, Leat, International, Purchasing, Engineering, Traffic, Subsidiary Operations) Sales and Advertising (Sales, Sales Promotion, Sampling, Merchan- dising, Advertising, Market Research, and all marketing operations) Finance (Treasurer, Comptroller, all financial matters) Three new Vice Presidents, each reporting to the appropriate Executive Vice President, were named to oversee Sales, Manufacturing and Advertising. Two new members were elected to the Board of Directors, one from Finance, the other from Manufacturing. A new Corporate Planning and Develop- ment Department was created and a highly qualified executive put in charge. The International Department, reorgan- ized and restaffed by its new Director, was expanded with more men in Europe, the Far East and South America. At all levels increased focus was placed on Lorillard people-new posts were created, staffs bolstered, specialists added, training programs accelerated. And to ensure that the best people in each area would be brought to the forefront, a new Management Evaluation Program for key people was set in operation. 4

With members of headquarters stalf, Sales Vice President William A. Jordan (seated, center) sets up work plans and merchandising techniques for expanded field sales organization. To meet 1964's increased demand for little cigars, emergency air shipments of Madison and Between The Acts were rushed to out-of-stock retailers. Lorillard salesmen "sample" crews of foreign merchant ships docked in U. S. ports. Above, Kent poster decorates wardroom while seamen enjoy Erik filter-tipped cigars. Z94t0000 5

, Advertising Vice President Daniel Ladd (seated) presents new campaigns necessitated by Industry Advertising Code for Mr. Yellen's consideration. Creative presentation for Kent and Newport campaigns Is made to Lorillard executives by advertising agency team. Spring TV commercial and Newport four-color magazine ad point up Company's use of settings directly related to brand characteristics. E91tooo0 IV Marketing The coordination of all activities designed to move finished Lorillard products from the warehouse floor into the hands of smokers everywhere is the responsibility of Executive Vice President for Sales and Advertising,. Manuel Yellen. Thus, Lorillard sales, adver- tising, promotion, merchandising, sampling, market research, etc. are planned as a uni- fied operation and the impact of each seg- ment is greater by its relation to the total plan. Implementing the various operations are Advertising Vice President Daniel Ladd and the internal Advertising Department; and Sales Vice President William Jordan backed by an expanded field sales organization which is the largest in Lorillard history. To ensure that it is also the most efficient, new sales training methods were inaugurated during 1964 and intensified on-the-job train- ing for those who, according to our recently- instituted Evaluation Studies, have the great- est potential for supervisory positions. Cigarettes Kent, our leading cigarette and pioneer of the "filter revolution", started its upward sales climb at mid-year, made steady gains throughout most of the second half, to re- cover much of the ground lost immediately following the Surgeon General's Report. Newport, our major contender in the men- thol category, made a most encouraging turnabout, and in the last months of the year exceeded its sales for the same me months in 1963. Spring ran strong through much of the year and its overall sales for 1964 were higher than for 1963. Its steady progress over the past two years indicates that Spring, while not yet a major brand, holds s promise for the future.

Before Lorillard Board meeting, Director Melvin E. Dawley (left) chats with advertising agency executive at New York headquarters. For four brands, Spring, Old Gold Filters, Old Gold Straights and York, we participated in the Gift Star Trading Stamp Program in several test areas with eminently satisfactory results. Old Gold Straights, although part of a de- clining market, is a profitable brand and enjoys a not inconsiderable sales volume. Sampling. One of the most effective methods of creating new customers is "sampling" - at the supermarket, the factory gate, on a downtown thoroughfare, wherever people congregate. In 1964 our consumer sampling program, with Kent and Newport the main beneficiaries, was considerably expanded and encompassed even such specialized locales as foreign merchant ships which put 7

8 Directors Harold X. Schreder and F. Gladden Searle (standing left and right) discuss agenda for regular monthly Board Meeting with President Cramer. With production of Kent begun by new licensee in Australia, Lorillard's leading filter brand is now manufactured abroad in twelve countries spanning three continents. in at U.S. ports. One tangible result: sales to "sea stores" customers increased sub- stantially, to record levels. Advertising Advertising expenditures were about the same as those of the previous year but we were able to achieve greater flexibility than ever before in our utilization of these funds. Throughout 1964 this flexibility enabled us to move more rapidly, to give additional support to a particular brand when and where it was needed, and to capitalize on strong demand when and where it arose. As usual, our cigarette brands received the major share of our advertising effort, with prime-time network television programs, starring big-name performers, as our major medium. Newspapers, magazines, radio and outdoor billboards on main traffic arteries were also utilized. For Kent and Newport we sponsored both the Winter and Summer Olympics on network television. To supplement the hundreds of millions of Kent and Newport impressions already reaching viewers via our regularly scheduled shows, these "specials" carried our commercial messages into well over half of all television homes. Kent received additional advertising sup- port via a heavy concentration of TV spots in the early part of the year, and later by special daytime television network commercials de- signed to reach supermarket customers. For Spring, we continued our daytime net- _ worktelevision programming on an expanded basis, and in selected markets added TV spot schedules. A major advertising development last year was the cigarette industry's self-imposed Advertising Code, prescribing certain limita- tions for cigarette advertising. Although not actually in effect in 1964, considerable time

and effort was expended during the year planning for all eventualities under the Code in the current year. Other Tobacco Products With sales of non-cigarette products on the rise, advertising for our smoking and chew- ing tobaccos and especially little cigars was expanded considerably throughout the year, and new products, backed by strong adver- tising support, were introduced. All of our non-cigarette products made significant gains. In the small but important and profitable little cigar business, we kept our substantial lead on considerably increased volume, with our Madison and Between The Acts brands continuing as the nation's two top-selling little cigars. Introduction of a new king-size filter-tipped little cigar, Omega, backed by network and spot television commercials, was highly successful. National distribution was completed by mid-year. With Erik, a small regular cigar and the first cigar with a built-in filter, your Company entered a new area. Supported by extensive network television and (in key markets) spot TV, newspaper and outdoor advertising, Erik surpassed expectations, achieved national distribution in just two months and has al-y ready captured a significant share of a grow- ing market. In 1964, sales of our smoking tobaccos increased at a faster rate than those of the industry as a whole, and each of our principal brands - India House, Briggs, Friends, and Union Leader -showed substantial gains. Expanded distribution and intensified point- of-sale activities In volume outlets helped in- crease consumer acceptance. Beech-Nut, our principal chewing tobacco, increased its sales in 1964 and was again the country's biggest seller. 99LI(1000 In Hong Kong plant of P. Lorlllard Limited (new Lorillard loint venture) Director of International Operations Gordon O. Fraser (left) and Company executives observe production for Far East growth markets. New plant of P. Lorillard s.a.r.l. !n Luxembourg meets strong demand for American filter cigarettes in European Common Market. 9

At Greensboro Research Laboratory, Vice President for Research Harris B. Parmele (Ieft) checks results of experiments aimed at continued improvement and development of Lorillard products. Operations The operational departments of P. Lorillard Company cover virtually all aspects of Ameri- can mass production and distribution. Raw tobacco and other materials must be bought and processed; shipped to our manufactur- ing facilities for conversion, by the most modern equipment and most advanced man- ufacturing methods, into finished products; then shipped to distribution points at home and abroad. In 1964 responsibility for all operational functions, including international activities and subsidiary companies, was vested in one senior executive-J. Edgar Bennett, who was named Executive Vice President for Operations. Reporting directly to him are all operational division heads and the vice pres- idents for Research, Leaf and Manufacturing. International Our international operations made gratifying gains in 1964, with export sales and royalties from licensees both attaining record levels, and our joint ventures s overseas operating profitably and well. Our international organization was ex- panded and new territories formed. We established our own distribution organization for the fast-growing Puerto Rico market; opened offices in Uruguay and in Lebanon (to supervise sales in lower South America and in the important Middle East export mar- kets); and set up warehousing facilities in the Suez Canal Zone to provide improved service to the more than 1500 ships that pass through the area each month. While total industry exports of cigarettes rose only slightly above the previous year's levels, Lorillard in 1964 substantially in- creased its export sales and, for the ninth consecutive year, enlarged its share of the important world market. Our Kent brand was the leading imported cigarette in such widely separated countries as Japan and Sweden, and outsold all other American filter brands in the Middle East, Peru, Switzerland and Luxembourg. Production of our international licensees also rose in 1964 and continues to be greater than our export volume. Wherever indicated, particularly in countries where import restric- tions and tariff barriers make it uneconomic to import United States cigarettes, our licensee program will continue to be ex-d panded and during the year we added God- frey Phillips International Pty. Ltd. of Victoria, Australia for our Kent brand. Perhaps our most significant international move in 1964 was expansion of our program of direct investment overseas. We acquired a half interest in a leading Far Eastern ciga- rette producer, now known as P. Lorillard Limited. Based in Hong Kong, it is jointly owned by our subsidiary P. Lorillard Inter- national S. A. and principals of the predeces-r sor company. It produces uces both Lorillard and domestic brands for the burgeoning markets of SoutheastAsia, Africa and the Middle East, where growth potential for cigarettes-es- pecially filters - is probably greater than in any other world area. P. Lorillard Limited is operating profitably and growing so rapidly we are already expanding its operations and have begun construction of a multi-story manufacturing facility adjacent to the pres- ent plant. Our Luxembourg joint Investment-P. Lorillard s.a.r.l., established late in 1963- is also growing most satisfactorily. Its new, modern plant, completed early in 1964, is now being expanded; sales in the Benelux countries of Kent and Newport increased substantially during 1964; and we are now

. . Stepped-up scientific Inve_ stigation by Lorillard researchers required new equipment, additional laboratory space during 1964. selling our Luxembourg-made cigarettes at popular competitive prices in France and Italy. With our current joint ventures progressing satisfactorily, Lorillard is now investigating other similar investments. In addition, we are actively considering another step toward more direct participation in expanding world markets_-acquisitions in which Lorillard will be majority owner. We are currently ex- ploring possibilities of this nature on several continents. Eventually we hope to have a firm foothold in all important world trading areas. Research That your Company has continued to stand "First with the Finest Cigarettes through Lorillard Research" is attributable to the many contributions and genuine discoveries of its Research Division, founded In 1929, and one of the first in the industry. All of our present-day products have come out of our Research Laboratories and great emphasis is put on continual product im- provement and development. During 1964, Vice President for Leaf Activities Henry E. Erickson (left) makes regular visits to Lorillard stemmeries to check on leaf storage and processing methods. To meet Company's rigid leaf standards, samples of new crops are sent directly from field to Lorillard laboratories for analysis. s34TOOOo new types of filters, blends, filtering sub-, stances, flavoring agents, cigarette paper- materials and techniques involving every phase of tobacco and its use - were studied by our scientists. They continued their inves- tigations of the properties of tobacco leaf, the composition of cigarette smoke, and the results and by-products of the combustion process. Our scientific staff was augmented during the year and a reserve laboratory, heretofore unassigned and designated for future expan- sion, was equipped with specialized ad- vanced apparatus and put into operation. Leaf The Leaf Division buys and processes many scores of millions of pounds of leaf tobacco a year. During 1964 our costs for this tobacco were slightly higher than in 1963, due mainly to increases in Flue-Cured and Burley price supports. Our purchases of other types of tobacco - seed leaf or cigar-type, and Oriental to- baccos grown mainiyy in Turkey and Greece 11

Electronically-controlled conveyors leed precise amounts ol dilterent tobaccos to blender lor production ol line Lorillard cigarettes. 6340000 -e were made more advantageously, due to anticipation of demands and pre-marketing studies made by our leaf organization. Our leaf buying organization was expand- ed, with more Lorillard buyers placed on more key tobacco markets. In each of its three years of.operation, our Danville, Virginia, leaf processing and stor-e age center has exceeded our most optimistic expectations of operating efficiency and economy. 1964 was no exception and sub- stantial cost savings, over and above those achieved in prior years, were realized. Our Lexington, Kentucky, stemmery re- ceived a complete refurbishing during the off-season, with a consequent rise in both employee morale and operating efficiency. During the year we started consolidation of our Wisconsin leaf storage operations into the more modern and better-equipped Lexington leaf storage facility, where auto- mated handling and fuller off-season utiliza- tion of year-round personnel are expected to result in substantial savings. Manufacturing For the Manufacturing Department, 1964's shifting consumer demands necessitated fast reactions to changing production needs, redesigned machinery, new manufacturing processes, s, and revised production schedules. Despite the numerous change-overs, pro-n duction efficiency increased sed and operating costs decreased. Award for Lorillard stockholder report for 1963, judged best in the tobacco industry /n Financial World Magazine competition, is accepted on behalf of the Company by Executive Vice President lor Finance George O. Davies (lelt). These results stemmed mainly from our continual probing of the future needs of the market and our program of developing in advance the necessary equipment and proc- esses to meet these needs. Among the new and redesigned equipment put into opera- tion in 1964-all developed by Lorillard engineers and machine specialists when suppliers could not respond quickly enough -were: the unique machines required to producer our new filter-tipped cigar brands, Omega and Erik; special equipment to affix coupons to Gift Star cigarette packages; making machines adapted to produce Madi- son and Between The Acts. All of this equip- ment was operated by regular personnel, trained to operate in a variety of capacities, and thus available for assignment where the need is greatest. During the year, our various training pro- grams-technical in-plant courses designed to improve operating procedures, and execu- tive training programs at leading universities Specially-designed equipment for Lorillard research projects must be labricated by Company's own glass blowers at Greensboro Laboratories when unavailable from suppliers.

Operation of special Lorillard-designed equipment is discussed at Greensboro plant by Manufacturing Vice President William D. Okerson (center) with top manufacturing aides. Lorillard technician checks newly-made filter "rods", which are about to be joined to cigarettes on Greensboro making machines. -were expanded. This program continues to show excellent results in tapping the potential of our employees and In more effi- cient operations and cost savings. The most significant personnel advance In Manufacturing came at mid-year with ap- pointment of William D. Okerson, a long-time Lorillard employee, as Vice President for Manufacturing. During the year, new machinery was In- stalled for production of new types of filters and for automatic loading of finished filter "rods." Modifications were made in our pack- aging and cartoning machinery which greatly speed up these operations and produce a more uniform package at lower cost. At our Louisville plant, installation of the automatic tobacco distribution system, begun in 1963, was completed, and our leaf process- ing operations improved and speeded up. Diversification In 1964 we entered the first stage of our planned diversification program, with execu- tion of an agreement to acquire Usen Can- More than 10,000 visitors toured the Greensboro plant in 1964 and heard Company guides explain the intricate production of Lorillard cigarettes. Manufacturing area of Lorillard Greensboro plant covers three and one hall acres, or the equivalent of three football fields. O44IUUUU 13

New equipment tor high-speed production of metal containers enabled Lorillard's Federal Tin and Paper subsidiary to increase sales of those products in 1964. Lorillard President Cramer and Usen Canning Company founder Irving Usen (seated right and teft) sign acquisition agreement. Robert Usen, Company head, and Lorillard corporate planning director Walter M. Aikman (standing left and right) look on. Honorary Chairman Lewis Gruber and Corporate Secretary Anna F. Woessner set preliminary plans for annual shareholder meeting. ning Company, of Woburn, Mass., makers of the nationally-distributed Tabby and Three Little Kittens brands of cat food. Usen's an- nual sales (approximately $8 million in 1964) have increased more than 250 per cent in the past five years. This compares with a 45 per cent gain in the same period for the entire pet food industry, and an increase of 110 per cent in sales of cat food alone. Usen Canning is thesecond largestcanned cat food producer in the country and the Number One producer in the lucrative New England market. We plan to expand its op- erations with new products, new plants to facilitate distribution, and increased adver- tising and sales promotion. The Management that built the_ company will continue e to direct operations. We are now actively considering expan-n sion into other fields where our experience and knowledge of consumer sales, distribu- tion outlets, promotional, marketing and ad- vertising know-how can be of value. To seek out and evaluate potentially promising situ- ations, during the year we created a new post, Director of Corporate Planning and Development, and named to it a highly ex- perienced management development spe- cialist, Walter M. Aikman. Our other non-tobacco subsidiary, Federal Tin and Paper Products, Inc., in 1964 ac- quired a variety of new customers, in new industries, for both old and new types of its metal and paper packaging. A part of the Lorillard corporate picture since 1911, Federal Tin and Paper during 1964 increased sales of its metal containers, discontinued certain unprofitable odd-size lines, and installed a new quality control laboratory. Staffed by Federal Tin employees and operated under the direction of our Greensboro Research Laboratory's quality control specialists, it is expected to improve product uniformity and quality. The Design Research Department, which develops new uses for metal containers and new concepts of paper packaging, was enlarged and in- stallation of high speed equipment for fabri- cation of spice containers was completed. Good Will Abroad As world demand for American cigarettes continues to grow, two important factors in expanding distribution and sale of our brands are a close working relationship with foreign government tobacco officials and the good will of the consumer. In a project de- signed to foster good relations abroad on both levels, your Company in 1964 honored its "ancestral home" in France. Montbeliard, in eastern France, was the birthplace of Pierre Lorillard, who more than 200 years ago, emigrated to America. In 1760, he opened a small snuff manufactory in colonial New York City and, by his ambition and pioneering spirit, laid the foundations for the company which today still bears his name. I44t0000 14

Celebration in Montbeliard featured huge parade by local populace. Costumed folklore groups and Montbeliard- produced floats with home-made representations of Lorillard cigarette brands were highlights. Newspapers at home and abroad covered the events in two languages and at great length. "Hands across the sea" program occasioned much good will and many activities in both Europe and U. S. Mayor of Montbellard, French birthplace of Founder Pierre Lorillard, presented specially-struck medal to President Cramer, visited Lorillard plant, participated in sister city rJ ceremonies at Greensboro City Hall. In 1964, in the city in which its founder was born, your Company restored a large hall of the ancient castle. Known as the "Salle Lorillard", it is now a museum, hous- ing an important collection of Gallo-Roman antiquities found in the Montbeliard region. To bring P. Lorillard Company's historic relationship with Montbeliard up to date, we were instrumental in arranging a "sister city" affiliation between the birthplace city, and Greensboro, North Carolina, Lorillard's lat- ter-day "home" and site of our principal facility. Preceded by ceremonies in New York honoring the Mayor of Montbeliard, Dr. Jean- Pierre Tuefferd, the first of official affiliation ceremonies on both sides of the Atlantic took place at Greensboro. Return ceremonies in Montbeliard were climaxed by a celebra- tion for the entire populace of the region. During the two-day festivities, Lorillard Presi- dent Cramer officially opened the restored Salle Lorillard, in the presence of French Government and Tobacco Monopoly offi- cials; the Mayors of Greensboro and Mont- beliard; and other French and American dignitaries. 15 I e . . .

Perhaps the most telling comment on the effectiveness of this international project came from a representative of the French Tobacco Monopoly (which is an arm of the Government and controls all matters in France dealing with cigarettes, from manu- facture and importation to distribution and sale). He said, "This is good international relations at its best. You have done much to create better understanding and sincere good will between our nations and our peo- ple. Vive Lorillard!" For the Future Our Company's past has been character- ized by renewal and revita!izations, and it is in this tradition that we look to the future. During 1964 we re-assessed every aspect of our activities and took every step possible to strengthen our organization forwhat's ahead. The dedication and perseverance of our 6,500 employees and the confidence of our 44,000 shareholders serve as a constant in- spiration to us. It is our firm resolve to con- tinue to merit this support and loyalty. President To advance Lorillard's expanding international interests, Executive Vice President Bennett (center) meets constantly both here and abroad with Lorillard overseas altiliates. EL4TUUU4 16 Future diversification and expansion moves are studied by Lorillard Directors Donald A. Henderson (lelt) and Harold E. Stassen. Personnel Vice President B. Lowell Jacobsen met with employees at all Lorillard otlices to explain new evaluation procedures and benelits programs. Prize-winning Lorillard booth at National Association of Tobacco Distributors convention is typical of Company's participation in trade conventions and lairs throughout the year.

Executive Vice President for Finance Davies (seated) reviews year-end figures showing Company reduced costs and operating expenses in 1964. New Lorillard Director, Comptroller John J. Dar6y (left), examines up-to-the-minute reports from new computer installation with Treasurer Edward G. Kontos. V44I0000 Financial Review 1964 Net sales in 1964 were $466,773,167 com- pared to $516,144,614 for the previous year. The larger part of the sales decline occurred in the first half of the year, influenced pri-y marily by the release of the Surgeon Gener- al's Report in mid-January. Net earnings for 1964 of $25,330,410 were lower than earnings of $27,918,457 reported for 1963. After dividend payments on Pre- ferred stock totalling $686,000, net earnings per Common share equalled $3.77 and $4.14 respectively, based upon shares outstanding at the close of each year. However, aggre- gate earnings for the last three quarters in 1964 were slightly ahead of the same period in 1963. Measures taken during the year to enhance efficiencies and to control costs contributed materially to profit margins which, at year-end, were comparable with those in 1963. Dividend payments for the year of $16,455,310 slightly exceeded last year's out- lays, reflecting a full year's payment at the annual rate of $2.50 per Common share, initi-d ated in 1963. At year-end, inventories totalled $256,095,871 against $253,408,162 at the close of 1963, and short-term borrowings of $52,800,000 were $1,250,000 higher than at the end of the previous year, reflecting an increase in leaf tobacco inventories of less than 2%. Capital expenditures during the year to- talled $2,598,272, slightly higher than com- parable outlays in 1963. However, expendi-s tures in both years are considered low and it is anticipated that capital outlays in 1965 will be substantially increased. Depreciation charges amounted to $3,365,063, virtually unchanged from the pre-g ceding year's $3,360,953. Real estate, machin- ery and equipment, net of accumulated depreciation and adjustments for disposals, amounted to $43,459,469, or $1,003,791 less than at the end of 1963. Capital investments in operations abroad rose in 1964 from $501,555 to $3,498,263, rep- resenting a further matching investment in P. Lorillard s.a.r.l. in Luxembourg, while still retaining a 50% interest therein, and the pur- chase of a half interest in P. Lorillard Limited, Hong Kong, both tobacco operations. The investment value includes your Company's equity in the net earnings of these two com- panies. Lorillard products manufactured here for shipment abroad increased about 31/2% and royalty Income, representing sales abroad by licensees locally producing our brands, increased slightly. The financial position of your Company continues strong. Working capital increased by some $3,400,000 in 1964, Long-Term Debt was reduced by$1,130,000 and retained earn- ings of $8,189,100 will be used for purposes such as replacement or improvement of fa-s cilities and equipment, and investment, either directly or by acquisition in additional oper- ations of both a tobacco and non-tobacco nature, whenever warranted. In 1964, all areas of financial responsibility were vested in a senior executive-George O. Davies, who was named Executive Vice Presi- dent for Finance. Reporting to him are the Comptroller, John J. Darby, who was ap- pointed to the Board of Directors, and the Treasurer. Thus, all matters relating to finance are planned under a unified administration. 17

Net Sales (millions of dollars) Earnings before Income Taxes (millions of dol(ars) t;l Taxes on Income  Dividends _ , r- 60  Retained Earnings Property, Plant and Equipment (millions of dollars) 93 Accumulated Depreciation  Net after Depreciation 60 50 40 30 20 10 1955 '56 '57 '58 '59 '60 '61 '62 '63 '64 Inventories and Short Term Borrowings (millions of dollars) 300 L Total Inventories  Leaf Inventories 250 n Short Term Borrowings s:! 1 ]! 200 i ;150 / 100 - - - _ = 50 1955 '56 '57 '58 '59 '60 '61 '62 Permanent Capital Employed (millions of dollars) i.j Long Term Debt  Shareholders' Equity '63 '64 - 300 1955'56 '57 '58 '59 '60 '61 '62 '63 '64 How our sales dollar was distributed Retained earnings 1.75 ~ - Excise taxes 40.80 Taxes Income and other taxes 6.35 eferred and common dividends 3.67 - 70 Tobacco, other purchases and depreciation 39.31 Interest 1.01 Wages and 11 f i ~~ salaries 7.11 1955 '56 '57 '58 '59 '60 '61 '62 '63 '64 1 1 1955 '56 '57 '58 '59 '60 '61 '62 '63 '64

1 Consolidated Earnings and Retained Earnings Revenues: Net sales ................................................... Other ...................................................... Total ......................................... Costs and Expenses: Cost of goods sold ........................................... . . . . . . . . . . . .. .. . . . . . . . . . . . . Selling, advertising, and administrative expenses ................ Interest ..................................................... Federal income taxes ................ State and foreign income taxes ................................ Total ......................................... Net Earnings .................................................. Dividends on Preferred Stock ($7 per share in each year) ........... Earnings Applicable to Common Stock ($3.77 per share in 1964; $4.14 per share in 1963) ........................... , .............. Retained Earnings, beginning of year ............................ Total ......................................... Dividends on Common Stock ($2.50 per share in 1964; $2.47/2 per share in 1963) .... ... ................................... Retained Earnings, end of year .................................. and Subsidiary Companies Year Ended December 31 1964 1 1963 $466,773,167 1,473,345 468,246,512 336,316,330 76,343,454 4,689,318 23,774,000 1,793,000 442,916,102 25,330,410 686,000 24,644,410 114,098,233 138,742,643 16,455,310 $122,287,333 See Notes to Financial Statements on page 22. 9UIQ000 $516,144,614 1,174,384 517,318,998 375,925,063 76,085,029 5,129,449 30,065,000 2,196,000 489,400,541 27,918,457 686,000 27,232,457 103,138,399 130,370,856 16,272,623 $114,098,233 19

Consolidated Balance Sheet 30a V and Subsidiary Companies December3l Assets 1964 1963 $ 10,185,708 $ 11,159,872 23,470,295 26,327,299 727,764 911,913 226,157,475 222,627,755 23,512,096 24,395,054 6,426,300 6,385,353 290,479,638 291,807,246 3,498,263 501,555 848,630 848,630 20,590,112 20,533,602 44,276,356 42,615,816 65,715,098 63,998,048 22,255,629 19,534,788 43,459,469 44,463,260 2,542,841 2,957,047 1,173,957 1,275,813 230,000 239,072 1 1 3,946,799 4,471,933 $341,384,169 $341,243,994 Current Assets: Cash ....................................................... .... . Accounts receivable-customers (less $847,229 in 1964 and $1,004,450 in 1963 for doubtful accounts and cash discounts).... Other accounts receivable .................................... Inventories (at average cost): Leaftobacco .............................................. Manufactured stock ................. .................. Materials and supplies ..................................... . .Total current assets ............ ........ Investments in Associated Companies (at cost plus equity in earnings) Property, Plant, and Equipment (at cost): Land ....................................................... Buildings and building equipment ............................. Machinery and equipment .................................... . Total ......................................... .Less accumulated depreciation . ............................... Property, plant, and equipment-net .............. Other Assets: Prepaid expenses and deferred charges ... ... ............... Unamortized debenture discount and expense .................. Mortgage note receivable ..................................... Brands, trade-marks, and goodwill ............................. Total other assets ............................. Total ....................................... See Notes to Financial Statements on page 22. 20 LUItl0O0

Liabilities Current Liabilities: Notes payable .............................................. . ... .. Accounts payable ........................................... Accrued taxes ................... ............... Accrued payrolls ....................................... ... Accrued interest .. . . . . ....................................... Other accrued liabilities ...................................... Total current liabilities ......................... Long-Term Debt: Twenty-five year 3% debentures, due 1976 ($350,000 to be retired annually to 1975) (less 1964, $403,000 held by Company) ....... Twenty-five yeaf 33/4% debentures, due 1978 ($675,000 to be retired annually to 1977) (less 1964, $937,000 held by Company) ....... 4'/®% sinking fund debentures, due 1986 ($1,600,000 to be retired annually 1966 to 1985) ..................................... ........................... Total long-term debt.- Reserves for Employee Benefits ................................. Shareholders' Equity: 7% cumulative preferred stock (par value $100 per share)- authorized 99,576 shares; issued 98,000 shares ................ . Common stock (par value $5 per share)-authorized 10,000,000 shares; issued 1964-6,593,798 shares;1963-6,575,548 shares... Additional paid-in capital (premiums less expenses on common stock issued) .......................................... . Earnings retained for use in the business ........... . . . . . . . . . . . . Less 67,094 shares of common stock in treasury (at cost) ........ Total shareholders' equity ...................... Total ....................................... 1964 December 31 $ 52,800,000 5,351,879 17,455,900 1,821,298 415,466 1,846,034 79,690,577 10,747,000 15,488,000 40,000,000 66,235,000 3,232,561 9,800,000 32,968,990 30,057,055 122,287,333 (2,887,347) 192,226,031 $341,384,169 See Notes to Financial Statements on page 22. SL4tOO0n 1963 $ 51,550,000 4,807,630 22,977,174 2,705,050 425,954 1,971,764 84,437,572 11,051,000 16,314,000 40,000,000 67,365,000 2,624,964 9,800,000 32,877,740 30,040,485 114,098,233 186,816,458 $341,243,994 21

Notes to Financial Statements (1) Provision for depreciation amounted to $3,365,063 in 1964 and $3,360,953 in 1963. (2) Under the Restricted Stock Option Plan for Em- ployees approved by the shareholders on April 8, 1958, options were outstanding at December 31, 1963 to pur- chase 53,200 shares of common stock, and 6,300 shares were available for the granting of additional options. During 1964 options to purchase 300 shares at $43.50 per share were exercised. At December 31, 1964 options remained outstanding to purchase 9,200 shares at $39.50 per share at any time up to September 18, 1969 and to purchase 43,700 shares at $43.50 per share at any time up to June 20, 1972, and 6,300 shares were available for the granting of additional options. The option prices are not less than 95% of the fair market value of the shares at the dates the options were granted. Under the Stock Purchase, Option and Incentive Plan adopted by the shareholders on April 2, 1963, options or rights were outstanding at December 31, 1963 to pur- chase or subscribe for 126,745 shares of common stock at $44.75 per share (100% of the fair market value of the shares on the date the options or rights were granted) and 201,982 additional shares were available and Subsidiary Companies for purposes of the Plan. During 1964 rlghts were exer- cised to purchase 17,950 shares under stock purchase arrangements and to subscribe for 19,720 shares (includ- Ing subscriptions subsequently cancelled for 170 shares) under stock subscription arrangements, and rights as to 53,675 shares lapsed. At December 31, 1964 options re-d mained outstanding to purchase 35,400 shares at any time up to July 31, 1973, 19,550 shares were reserved for sale to employees under stock subscription arrange- ments, and 255,827 additional shares were available for purposes of the Plan. (3) In 1964 the Company entered Into an agreement, subject to certain conditions precedent, to acquire in 1965 substantially all the assets and assume certain lia- bilities of Usen Canning Co. in exchange for a minimum of 150,000 shares of common stock of the Company. (4) Covenants limiting the payment of dividends on common stock and the purchase, redemption, or retire- ment of such stock are contained in the debenture in- dentures. Under the most restrictive of these covenants the amount which could have been expended for the foregoing purposes at December 31, 1964 was limited to approximately $60,000,000. Source and Application of Financial Resources Year Ended December31,1ss4 Source Operations: Net earnings ...................... $25,330,410 Application Payment of dividends ................ $17,141,310 Property additions (less disposals Depreciation and other non-cash $237,000) ................... . . .... 2,361,272 charges against current earnings. . 4,074,516 Investments in associated companies .. 2,996,708 Total .................... 29,404,926 Reduction in long-.term debt .......... 1,130,000 Sale of common stock to employees ... 107,820 Purchase of common stock (in treasury) 2,887,347 Other .............................. ... .. 423,278 Increase in working capital ........... 3,419,387 $29,936,024 $29,936,024 Accountants' Opinion HASKINS & SELLS CERTIFIED PUBLIC ACCOUNTANTS 2 BROADWAY NEW YORK 10004 To the Board of Directors and Shareholders of P. Lorillard Company: We have examined the consolidated balance sheet of P. Lorillard Company and its subsidiary companies as of December 31, 1964 and the related statements of consolidated earnings and retained earnings and source and application of financial resources for the year then ended. Our examination was made in ac- cordance with generally accepted d auditing standards, and accordingly included such tests of the account- ing records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the accompanying statements pre- sent fairly the financial position of the companies at December 31, 1964 and the results of their operations and the source and application of their financial re- sources for the year then ended, in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year. 1740~ WeA January 27, 1965 22 644I0000

. c Ten Year Comparison of Financial Statistics -. (~7i7?~ar'~l~ and Subsidiary Companies Year Ended Dec. 31 Net Sales Earnings before Taxes on Income Income end Excess Profits Taxes Net Earnings Earnings per Dividends per Common Share'1 Common Sharet 1964 $466,773,167 $50,897,410 $25,567,000 $25,330,410 $3.77 $2.50 1963 516,144,614 60,179,457 32,261,000 27,918,457 4.14 2.0/2 Relating to Operations 1962 516,108,381 55,548,920 28,917,000 26,631,920 3.94 2.40 1961 492,930,882 59,659,073 31,240,000 28,419,073 4.22 2.20 1960 487,329,716 59,052,257 31,671,000 27,381,257 4.06 2.20 1959 490,873,749 60,431,157 32,166,000 28,265,157 4.20 2.20 1958 479,120,409 57,915,083 30,878,000 27,037,083 4.01 2.00 1957 293,415,430 25,145,412 13,661,000 11,484,412 1.89 .97 1956 203,280,417 8,618,758 4,099,000 4,519,758 .67 .60 1955 228,268,392 13,098,500 6,502,500 6,596,000 1.03 .67 ~-Property, Plant and Equlpment- Shareholders' Equit At Dec. 31 , Total Inventorles Working Capital Gross Amount Net after Depreciation Amount Per Common Share't Relating to Balance Sheet 1964 $256,095,871 $210,789,061 $65,715,098 $43,459,469 $192,226,031 $27.95 1963 253,408,162 207,369,674 63,998,048 44,463,260 186,816,458 26.92 1962 252,976,513 196,389,225 63,537,559 46,124,843 175,817,124 25.25 1961 265,874,251 198,405,520 59,906,262 44,532,885 165,513,986 23.69 1960 236,427,503 155,195,423 51,666,882 38,771,079 151,945,219 21.65 1959 218,613,345 150,577,898 45,690,733 34,621,223 139,690,868 19.79 1958 197,069,209 143,916,484 41,037,558 31,475,731 126,552,617 17.78 1957 161,449,360 109,803,777 37,495,633 28,777,280 86,674,232 13.47 1956 136,652,281 110,245,323 35,079,590 26,399,561 81,438,885 12.55 1955 140,988,335 112,451,576 34,292,757 25,488,791 81,028,497 12.48 ' Based on number ol shares outstanding at end ol each year. ; t 1958 and prior years adjusted to give ellect retroactively to 2 for I common stock split !n 1959. US4IOD00 23

~~u~ and Subsidiary Companies II I Board of Directors J. Edgar Bennett Morgan J. Cramer John J. Darby George O. Davies Melvin E. Dawley Henry E. Erickson Lewis Gruber Donald A. Henderson William A. Jordan William D. Okerson Harris B. Parmele Harold X. Schreder F. Gladden Searle Harold E. Stassen Manuel Yellen Officers Morgan J. Cramer President and Chief Executive Officer J. Edgar Bennett Executive Vice President, Operations Manuel Yellen Executive Vice President, Sales and Advertising George O. Davies Executive Vice President, Finance Dr. Harris B. Parmele Vice President, Director of Research Henry E. Erickson Vice President, Director of Leaf Activities B. Lowell Jacobsen Vice President, Personnel William A. Jordan Vice President, Sales Daniel Ladd Vice President, Advertising William D. Okerson Vice President, Manufacturing Anna F. Woessner Secretary Edward G. Kontos Treasurer John J. Darby Comptroller Lewis Gruber, Honorary Chairman Other Corporate Information Executive Offices 200 East 42nd Street, New York, N. Y.10017 Corporate Offices 15 Exchange Place, Jersey City, N. J. General Counsel Perkins, Daniels & McCormack Advertising Agencies Lennen & Newell, Inc. Grey Advertising Agency, Inc. Albert Frank-Guenther Law, Inc. (Financial) Public Relations Counsel Sidney J. Wain, Inc. Manufacturing Plants Greensboro, N. C.; Louisville, Ky. Research Laboratories Greensboro, N. C.; Louisville, Ky. Leaf-Storage Warehouses Louisville, Ky.; Lexington, Ky.; Danville, Va.; Lancaster, Pa.; Madison, Wis. Stemmeries Louisville, Ky.; Lexington, Ky.; Danville, Va. Field and Division Sales Ofiices In all Principal Cities Subsidiaries Federal Tin and Paper Products, Inc., Baltimore, Md. P. Lorillard Pan American, Inc., San Juan, P. R. P. Lorillard International S.A., Zug, Switzerland Associated Companies P. Lorillard s.a.r.l., Ettelbruck, Luxembourg P. Lorillard Limited, Hong Kong, B.C.C. Auditors Registrar Haskins & Sells First National City Bank New York, N. Y. New York, N. Y. Transfer Agent any Chemical Bank New York Trust Company New York, N. Y.

Ce4tQOO0 9 R a 4 awg. or~itard'S"Fine~Tobacco Products, ~ b Y " Throughout its~~fong~oist, ary1yournCompany~llas~enJoyed~~ ~,'~` areputation for,the finest tobscco p~oducts;that cen'be,made ~`~~ suu anrsmnuacrey ff "best`'~ ~from thenof_qalityd flavoxaftud b Pierre`HLorlllard~over~`200.~earsago?~to;the~"products;of to-~ ~. '~ ; - w - . • q;., ftra ~~, ~: ~morrow ~currentl~~turned1.out Iri kour~u-modern piants~bj~~ _ the most advanced scientific land technoiogical :methods, >~ ~r' ^. r~( ?!• ~ ~. ,~ ;A ploneer, iri~the ~filter;~cigarette tietd; your Compny;con t~ ~ r: a~ ~a f ~ . .. t nUes to corlcentrate its,efforts in:this keyyarea of the indus ~yr ~ :,. ~y ~, : + , try,Yand our~leading fiiter brands,~Cent, N,eawport{;;Sprrng an Old`Goid Fiifers account~for thef~reat bulk of our salesl For : , ..r the~5izeabie ~+number~of~~mokers':a~ who~ prefaer,~the~r~ tobacco strti~ght~weyoffer two brands-~Olq Go~d Strafghts and..~Yor ~~ ~ ,~~~ 4,'.'~d ~~J. .. rAlthough first~and;~oremost~,,~ aYcigarette;producer,~P,Lorll . , ,, . . ~ard;,quality proiiucts, embrace all smoking tastes, Omega, a,;" ~~ ~ ~ed - , filfe~tippedylfttle~cigark}~has~join our,t'leading little,,cigar brandsk sMadi§on~and~Between,,,7he~Acts,;and Erik,a<small ;. Iregutsr ~iger' ~withta~built ~n~fiiter{4iszour erftry in;the growing$s ~cigar~inarket;~Our~principai pipetobaccosk~;India .House ; B~iggs~F~fends,~and,Union~~eader,rhave~aong,:beeri~familia , names I~t{+thefteld;~and Beech=Nut; ourw~op sellingrbrarld of chewing~~obacco;~ is~:complemented~by fwo~regidnal brarids ~-Bdgplpe_ and„Havana'Btos§orn~. w 4 g M Q a 0 ;Y. J-" fT :f h TJ r1" r,h A*41A1RJ a x'1 .. a,

0 1964 Annual Report Vg4I0000

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