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The Board of Directors HERBERT A. KENT' (1939) Chairman of'the Board JosEPx J.,BLACKtvALL (195QV Vice President and Director of Manufacturing WILLIAM J. HALLEY ('1941)~. President~ LEWISGnUBER (1946). Vice President and' Directorof, Sales DR. HARRis B. PARMELE ('1950) Director of Research ALDEVJIAaIES (1950) Vice President and Director of Advertising HAROLD F. TEIIPLE(I943I. Director of Brand Development MELVIN'E..DaWLEY(I950). DONALD A. HENDERSON (I9446) Vice P'residentandDirector, Treasurer and Seeretary,;, Lord & Taylor Twentieth Century-Fox Film Corp. FR~A~N'IC' HOPEWELL Q940'J Executive Vice President IeN'Iy FL Pf.%K(II943) Vice President and Director of Leaf Activities' FREDERICK M. WALSON (1953) 1 Director of Purchasing F. GLADDEN SEARLE(1943~) Industrialist The year shown in parentheses is the year of first election as a Director

ANNUAL REPORT for the Year Ended December 31!, 1953 Maker of OLD GOLD, EMBASSY and KENT Cigarettes, MURIEL Cigars, and other Tobacco Products O F'F I C E R S HERBERT A. KENT WILLIAM J. HALLEY . FRANK HOPEWELL JOSEPH J. BLACKNALL LEWIS GRUBER . . ALDEN JAMES . . . IRVIN H. PEAK . . . GEORGE O. DAVIES ANNA F. WOESSNER JOHN J. DARBY . . . Other General Counsel . Auditors . . . . . Transfer Agent . . Registrar . . . . Advertising Agencies Executive Offices Corporate Offices Manufacturing Plants . . . . . . . Chairman of the Board . . . . . . . . . President Executive Vice President Vice President and Director of Manufacturing . . . Vice President and' Director of Sales Vice President and Director of Advertising Vice President and Director of Leaf'. Activities . . . . . Treasurer Secretary . . . Comptroller Corporate Information Perkins, Daniels &' Perkins . . . . . . . .. . . .. . . . . . . Haskins & Sells ... The New York Trust Company, New York„N. Y. The National City Bank of~New York, New York, N. Y.. LennenA Newell, Inc. (OLD GOLD, EMBASSY, MustEL) ; Young & Rubicam, Inc. (KENT) ; Albert Frank-Guenther Law, Inc. (Financial) . 119 West 40th Street, New York 18, N. Y...... 15 Exchange Place, Jersey City, N. J. Jersey City„N. J.; Louisville, Ky,.; Richmond„Va. Louisville, Ky. ; Richmond, Va. ; Lexington, Ky. ; Danville, Va.;, Lancaster, Pa.; Madison, Wis.; Leaf-Storage Warehouses . La Crosse, Wis.; Evansville, Wi's.; Windsor, Conn. Stemmeries ., . . . . . . . . . Louisville, Ky. ; Lexington, Ky. ; Danville, Va. Field and Division Sales Offices ........ .. In All Principal Cities Subsidiary . . . . . . . . . . . Federal Tin Company. Inc.,,Baltimore, Md. Sa1es Volume Reached a New High Page 6 The Advertising Investment Yielded Greater Dividends Page 8 Our New Greensboro Plant Centerfold Leaf Costs Went Up Page 12 Every Plant Worked at Full Capacity Page 13 Research . . . in Lorillard's Greater Service Page 14 Consolidated Balance Sheets Page 16 Accountants' Certificate Page 19 81215~1~0

„ THE YEAR IN REVIEW TftE. YEAR 1953 wass markedl by higher sales Tl/ and higher profits an&somewhat higher divi- dends. It was also a year of the stiffest competition dhe Industry has ever knowna ^~c- Over-all sales in 1953, the largest in the his- tory of the Company„were e253,933,462, which was 539;424,980 more than sales in 1952. Profit of $7,195,167 was the highest ever recorded'and 26% over 1952. It amounted to $2.28 a share,of common stock, compared withi$2.01 in 1952. The year 1953 also brought relief from Gov- ernmental price control, which gave Alanage- ment an opportunity to make adjµstments in many ways to balance partially the increased costs,of~ tobacco, labor andlother materials. Relax- ation of this, restriction accounted' for altnost $7,300,000 of the $39,42-1',980 increase in sales. (Dividend payments were up Increased profits permitted the Board of Direc- tors to decl~re dividend payments for thee year of $1.60 per common share, up 100 from 1952. This is especially noteworthy because in 1953 additional stock was sold in the ratio of one new share for each seven.old shares. tns~eaT pu'Tditaaes-~us~ e ... profit of $2.28 a share of Y common stock notediabove would have amounted to $2.61 a share had not the additional 356,573 shares been sold. Sales set a new record high )i' Our sales continued to rise. Most noteworthy was the performance of OLD GoLD, the only major brand among cigarettes offering bothxegular and king•size to enjoy a sales increase in 1953. The debut of king-size ntn GOLD in, April;, a step prompte&by a definitive trend, contributed to the brand's growth during the balance of the year. Filter:tipped cigarettes in 1953, doubled the share of the market they had in 1952. KEST doubled and redoubled its volume and' showed the greatest percentage of increase of any brand over 1952. Shareholders will be interested to knoww that normally it takes four or five years for a new brand! to get into the black; KENT accomplished it soon after we achieved nation-wide distribution. You may have read some of the recent news- paper stories which accented the fact that the cigarette Industry in 1953 failed to show an in- crease over 1952. We cannot honestly become alarmed. 1Wlany, factors require mature considera- tion. King-size brands~ wer~e, ahead' 9%)` For example, there was the increased! sale of king-size cigarettes - in 1953 they accounted for 27~Jo of the market, 9`,>0~ more than in 1952 - which naturally tended somewhat to reduce unit consumption. And, there were a number of neww brands - as well as new size old brands - intro- N

uced during the year which requiredlinventory. adjustments by distributors. Too, there is doubt Whether the d% increase in factory withdtawall jn 1952representedla: 4`c increase inactualcon- sumption or may have been a reshuffling of in- ;ventories. Wide publicity was given~ dtiring 1953 to re- ports of experiments with mice and to suggestive statistical analyses which attempted to link exces- sive cigarette smoking with lung cancer. While these are unproved and inconclusive studies, Man- agement does not believe they should be lightly dismisseda Accordingly, we have sought the faets. Shareholders will be interestedlto know-that many distinguished doctors and research scientists have pttblicly,questioned the validity of these experi- ments andl their significance. There is no proof' that oigarette smoking is a cause of lung,cancer, and there is no agreement among the medical authorities on what the cause may be. We believe Lorillard products are not injurious to any one's health, but we accept as an inherent responsibility of our corporate citizenship the ob- ligation to~make the public's health our business. In addition to continuing,a program, of research in our own laboratories and through consulting research organizations,,we have joined with other cigarette manufacturers in the formation of the Tobacco Ihdnstry l1es'ea`rjh-Couimittee, which, we are confident, will get the true facts. In 1953 your Company honored its long-service employees. Gold pins in recognition of loyal and continuous service, ranging from 20 to 50 years, were presented to 629 Lorillard men and women. With this group of seasoned4 mature people of hard-won knowledge and' experience we have blended middle-aged'men and women at the peak of their potential, and energetic, young blood with an earnest! desire to learn and to serve. Thus the Management team has balance and as- surance of continuity of leadership: Planning fortomorrotu~; - ~~""~- ' Programmingfor our new plant in Greensboro, North Carolina, advanced as planned. Ground- breaking ceremonies will be held there at mid- year. An architectural perspective dtawing is shown at the centerfold. This new source of pro- duction will permit the Company to sustain~ its growing stature in the Industry. In the past year we strengthened our fundk- mental position in the Industry. We are confident and optimistic about the future. ~,a. (t,~ O~- ~ Chairman o/ the Board' (ANNUAIi MEETING AND PROXY: The Annual Meet- ing of Lorillard shareholders will be held on April' 6, 1954. Notice.of this Meeting.is enelosedlwith this Report, along,with proxy, and proxy.statement... Approximately,7 q . of our shareholders.own100.shares or less. As we sai in a previousAnnual Report: "This means we are fina ced by Main Street. R'e like this situ- ation because.itim essmalt holders important. It makes each proxy, for h ever few sliares;, spokesman for an individual who works, saves and invests in his future security." Your proxy iss thus.your way to.approve or disapproveofi Management's stewardship. Your vote is therefore important personally to'vfanagement. If yoware unabl6 to attend our Annual 1leeting.in New.York on.April 6, 1954, please sign and return your proxy before you put it aside: Itt will let us know of your continued interest. 3

Our 1953 Results at a Glance 1953 We received: From sales of our products . . . . . . . . . . . $253,933,462 Our costs were: Federal Internali Revenue stamps . . . . . . . . . $112,685,338 Leaf tobacco; other materials and services; and miscellaneous costs . . . . . ... . . . . 95,763,669 Wages and salaries . . . . . . . . . . . . . . 20,834;751 Depreciation . . . . .. . . . . . . . . . . . . 1',051,45 7 Interest paid to banks and bondholders ...... 2,520,247 Federal and State taxes on income and other taxes .. 13,884,429 These costs totaled . . . . . . . . . . . . . $246,7391891 Leaving us net income o f . . . . . . . . . . . . $ 7;1'93,571 $ 5,700,942 Which was allocated as f ollowsr Cash dividends . . . . . . . . . . . . . . . . $ 5,143,477 $ 4,430,307 Retained for future growth . . . . . . . . . . . 2,050,094 1,270;635 Our shareholders' investment at year•end was $' 77,878,061 1$ 67,820;512 Which belonged to our shareholders as follows: Preferred shareholders . . . . . . . . . . . . . . . . 13 io ~ 14 7~ Common shareholders ( including, retained earnings ). ... 87 ;'0 86 `~o And benefits these members of the Lorillard family: Preferred shareholders (year-end) . . . . . . . . . . . Common shareholders (year-end) . . . . . . . . . . . Salaried employees (~year-end ) . . . . . . . . . . . . Wage-earning employees (year-end) . . . . . . . . . . Results per common share: Net income . . Dividends . . . Book value TOBACCO, OTHER PURCHASES & DEPRECIATION `\ 38.130, HOW OUR SALES DOLLAR WAS DISTRIBUTED $I 2.01 $ 1.50. $23.24 WAGES & SALARIES / 8.20 4 00INTEREST ~i0.994 ~ INCON r 2,021 26,404 1,458 5,128 ~ 195G ° PERCENT INCREASE 79,257,349 18,317,437 950,870 2,026,607 8,041,323' $208,807,540 2,089 26,320 1,322 5,179 $ 2.28 $, 1.60 $23.86 .r.,.Pwr-,".---•- .. .-T-

TEN!-YEAR COMPARISON OF FINANCIAL STATISTICS RELATIiNG TO OPERATIONS Year Income Incomeand' Ended Net before.Taxes Excees Dec:31' Sales onlncomeProfiisTaxes. 1953'$253,933,-162$18,789,1I67 $111,594,000 1952 214;508,482' 11,640,942 5;940,000 1951 188;347,430: 10,943;4725;$17;000 1950' 167;936,931 12,632,768 51$95,000 1949 153,500,123 11,211,133 4,387,000 1948 140,279,236: 9,143':839 3,498,900 1947 127;919,655 8,946;625 3,430,700 1946 124,04,7,263 5,661,513 2,149,300 1945 126;429,130 7;645i170 4,110,713 1944 1231790,406 9,928;791 ; 6,320,942 Net Inrome Income per Common. Share' Ddvidends per Common Share $7,193,571 $2.28' $1.60 5,700;942 2.01 1.50 5,126;472 1.78 1.50 6,737,768 2.69 1.85 6,824,133' 2:73'. 1.75 5,64-1,939 221 1.50 5,515,925 2.15 1.50 3,512.213' 1.26 1.00 3,534.457 1.27 1.00 3,607.849 , 1.30'. 1.00 RELATING TO BALANCE,SHEET 3f0 20Y 100 0 At TotaL' Dec;31/nventovie~.a Rorking Capital ' $111,269.498 , 81,369,6511 81,658;130 69,90 7,552 70,474,585 69,537,669 69,8934204! 69,476,241 71,458;02770,201,362 Property, Plhnr and Equipment , . Book {°alueCruss Net aJter Shhreholders' per Com. Amourst Depreciation Inces[ment mon Share• 524,392:884 22,605,222' 21,342,441 19,433,534 17,707,279' 16,726,561 15,291,608 14,5811,737 11,806,081 11,818,588 * BAeed on nurnber of shares outstanding at end of each vear. 1953 $135,727,170 1952 125,008,096 1 1951 . 101,995,679 1950 ~ 84,461,181 1949 ~ 74,992,955 1948 72;538,273 1947 73;237,247 1946 77,834,711 1945 87,196,404 194I 69~;204,385 LORILLARD SALES OVER 10 YEARS (kck n mdllo~u d doltnm) Illlilflfl t1iii1_i1r1 44 /{ w so .,, ,5 , H9 51 .1 $16.218.639 15,085,844 14,200,835 12,734,785 11,094,041 10,509,406 9,153,150 8,456,319, 5,793,091 5,984.078 LORILLARD EARNINGS OVER.10 YEARS (Scu/.~„ ,,,~(I~on. oldollJr./, , w- 111111111 , ' ' ' 1 , 1 1 1 ~ '47 44 577,878.061 67,820,512 66;$49,877 60;8 76,008 58,980,453 56.773;869 55,184,829 53,724,799 52,740,209 ~ 52,138';34iI $23.86 23.24 22.73 22.73 21.89 20:91i 20.20 19.55 19.1'1i 18:84'' LORILLARD~~NETi WORTH~OVER 10 YEARS (Sta/ein mXGuns oLdallan) 70 111111111 -

Alth'oughcompetition was keener in 1953,' Lorillardbrands, U-ing progratns/or introducing king-.size. OLo GOL andd went ah"ead I c', ..Sales Dttisionlswell-planned rnerchandis, 1"/i qushing KES7 helpedbring the Gompanyitsy best sale yiear. a lll__ ~ 12° Ck I l Sales Volume Reached a New High i/ Our major brands shotced gains higher than Industry averages ~ __ \ BRIGHTNEW-CHAPTERw'as written into~ the Lorillard book of sales im 1953. While the Industry as awhole failed'! to advance, Lorillard brands were upi3 % . Our OLD GOLD was the only brand in its cate- gory to show an increase over 1952'sales accord- ing to publi'shed figures widely held'as authorita- tive and which we use as a yardstick to measure comparative Industry growth. Our filter-tip brand KENT showedlthe greatest percentage gain of any cigarette, regardless ofc]assificationf King-size cigarettes as a who]e advanced 45"z 53 accounted for 27% of the market. Our king-size CoLD made rapid strides in the eight! months it was on market and enabled' our principall brand to end t ear as the only cigarette in both regular and king an increase. e to show Ihtroduction ofOLD COLD king-size wasxccom- plished with ow-er-night nation,wiile marke-ai1- ability; an achievement unique in cigarette hisory, When king-size OLD GoLD made its dbbuGe logically shifted promotional emphasis to it in- stead of EMBASSY, which could not be expected to respond as dramatically in the king-size field as a cigarette which has the heritage of~ fine quality long associated with~OLD GOLD. Filter-tip cigarettes continued to grow in popu- larity am]'show-ed a 1213`,%'r gain over 1952. The sales progress of KENT was the talk of the Indus- try; our fillt'r-tip brand' turned in a spectacular 500;5 sales increase. By'late Spring,of 1953 pro- ditetion facilities enabled us to make KES'r avail- POST-WAR GROWTH OF LORILLARD CIGARETTESII x,l VS. ALL OTHER INDUSTRY~ BRANDS IAbLI.. -va0.LLE5 IDKI991 4 L..n. R. Lnik.d 'e.i..ai, Rp-. /e. O. G d. '4 '~B'dA f0 SI '!2-f! -te ,i ~ . . . . _ . ._ _..,. L~~18 X MOMW I'A iN 11A v 1

Among.1953'sdramaticdisplays. tolaunch' OLD GOLD king-sizetcas this neu rack for Itrrgemarkets. The rack "n7so featureaQLo Gauo regular. KesT and L:arnsssr. able inievery I!'. S. city. More of each salesman's time was assigned to assuring a wider availttHility of KF:NTi- and~'1se gave greater enihhasis to smoke demonstrations before medical and dental con- ventions to prove the superiority , ofKF;N'r's, 3ficronite filter. Cigar sales thruughout the Tndustryfluctuate.elduring. the year and. while upslightly in volume; were disappointing,from the standpoint of profit.. He.vnLttis„ now availabl'e in a vacuum-pack. showed the greatest strength in 1953. Mnmet.- our leading cigar brand, which showed am 13E%gpiniin 1952, ddid not advancein 1953. -I-ndaatry, ales of chewing tobaccos fell off 3 ~; rluring,the yea 'fiut our branrl T3e.F:ctt-1t T; the Industry's leader in rL~` lass, continued to enjoy a sales Qain, advancing .3.^t over 1952. On the othu hand, sales of smokingtobaccns, followiirga trendlof several years, continued to~fall off in a narrowing market. Creat ing ege-arresting uindowdispla- ~ ~s aree one phase o f boorillard . sale.smen's actirit y. This is.a typical'displai-for Mcarr:L cigars. -:~L i Samp(ing actiritpl took salesmen ererrachere. errn intoo disastr~r areas.to makeftirndsfur OLO.GoLU. T'hisis a scenc at tornado-su-ept' Idoncester, lfass:,,last summer. Throughout the year the Lorillard sales:orgarr ization was stabilized and strengtherred;at notime in Comparn- history have we had a more hard-working and alert force ofmerchandising specialists. No channel to thc eonsumer was overlooked and some new ones were developed. ]'Ierehandis, ing through food and grocery stores, which Loril- lard pioneereelland ichichno%c accounts for about one-third of all cigarette sales. receicedl oreater attention. The importaneeofvending machines was seeni by Lorillhrd se eral years ago: such sales nurcreltresent Ifi''i of thelndhstry volume. Ih 1953 we developed new deti-icesxb dr.uvsmok- ers to the OLD GOLD columns in vending ma- chines. At c%rryuphortunity -inRFDcountty stores and sleek new airlines terminals. from Social Register functions to county fitirs-Loril- lard=_alesmen were winnin~new' friends:fur c;~ ~ ,,. brands h.ending machinesreceiied'added, atten, tion in 1953 .icith netv adrertisrna rlerxesdesigned to attractsmokersto our.columns. Ih-store snmke dcrnansarationsm too pracr su periorit c. o f ILE:.NT-s aficronite filter becam_rr _ anerer-rridening artiriiy of' oursalesmen.d ~ i. ~:;;~,: i _ , i KENT KENT

t The Advertising, Investment Yielded Greater Dividends LorilIard brand nsages &A1., i*lf q reached 100,000,000 people rueekly in 1953 nveeTTStxc is an investment in product devel- ~ opment, brand loyalty and Company growth. ~o_nfronted with the stiffest competition the In- dustry has ever known, Lorillard strengthened this investment im 1953 to gain greater prominence, for our brands. The test of any investment is the dividend it y,ields. In 1953, the dividend was reflected in tbee fact that Lorillard was one of the few tobaceo companies-and the only major one-that could point to a unit sales increase during the year, an advance of 13 ie over 1952. The advertising investment enables the Com- pany to balance production and consumption- an& tip the scales in favor of safeguarding the: shareholder's interests. Each passing year encoun- ters new cigarette brands which are making an impressive bid for consumer, recognition. To fend off ~ these attempts to, penetrate the lines Heldl by oldlestablished brandS, it may even be necessary in the future to broaden the program of! advertis, ing as a protective measure. Because Lorillard cannot divert the tremendous sums of money to advertising thatisome firms can„ the Company's advertising architects in 1953 had to get more than a dollar's value for, each dollar spent. The Company concentrated its magazinee advertising for Oun GOLD in Life, Look and The Satarday Evening Post, through~which~it reached' an audience of 58;550,000'with each ad. In addi+ tion, OLD GOLD messages were placed in publica- tions having a: specific appeal. In 1950 Lorillard became the firsucigarette producer to advertise in the mass circulation magazines sold throu& grocery chains and super-markets. Ih 1953 the Company decided;to expand'its use of these pub- lications„ a step dictated by the faeu that during the yearone-thiid oflall cigarette sales were made at the check-out counters of food stores. How well the Company succeeded in getting more than a: dollar's value for each dbllar spent was reflected in continuing surveys to determine the number of magazine readers who note OLD GOL'a~advertising. OLD GOLD showed 25% higher recognition per dbllar spent than otherbrands: Of similar interest was the survey report that' 51`,~ of all smokers-regardless ofl their brand preferences-remembered'specific features of~OLn GOLO's advertising. This has special''; significance for us because, in 1953, the tendency, of smokers to switch brands showed a;marked increase. We expanded our use of television on behalf'~ oflOt.u GoLO,in 1953: Our two establishedlshows - Two for the Money and! Chance o fa Lifetime - continued to reachi large weekly audiences, and! we added a bright new show, Judge for .19-c j.kF,t:u Popular Hoosier humorist Herb Shriner reaches18,000,000. weekly via radio,TV alarityof,Dartcir kk's,wa.4'ser~, in 'l0, e, sts for t /aces. ~ ~ KENr.cammercial given by Jonathan.Blake wonmany. TY advertising luonors ia 1953.

a A QUICK LOOK AT LORILLARD'S NETWORK ADVERTISING - "-4 . • _-- - iwe Far Judp Fur~ CKan<e Of O~wn ier Taylen Mw.dor Morninp I Th. Momv. rwrr+elf A 4NIim. Th. W.b' A Dar' I Grm. N.w+ -dl:nes IGm TF.alr:. Audi.~o./W.eklrl. 19,17 1.000. 12.9]r.60D ].242.300~ 13.MAOD1 11.0311.000 3:060,RD0 1.800.000. d]L1.01r. bmw Cemedy O,n.r . . r v nlii N.wrce+r N.w+cea Dra.wy~r SAew 41, ~ , Senp ludpirnp I SAew. ama D ~" e r r 5+ M1.d Dru+L M1en lo Jzk fa.lar Da. Gardin.r a Juw lNk. 6oil'.. Grane l.n M o.daer'. Yanieua ~o.k' N~C ~ 'WMa++/ - CLS /JaII M A!C AEC V'anio.a Dav,andNOUn(EST). Se./Nsr9~ f.9;b IM T~+dura RM /410:M . 10-.I FndaO r+ .30 FM. SundnM+ 10.10:111 PM ~•-Fd. ll:l3~ 12':00..AM S.ndo.. 9:13-9:30 VM Sundov+ GalS-6:30~ FM Vo.ieua TV end. ar padie TV l Aadi. _ IV' TV rY Aedio Aedie 0.odio~ TV. eFS.ariont-TY. Na~ Ali.. NIiM. SDlil.r - - - 2b . Yfilm~ Slfilm 11RIm pRlm - Ele.afSbrisna-Aafd. 209. - 510. 111 3]t - M1edur, FMUr.d OLD GOLD OLD GOLD OLD OOLD ~ IL.nr OLD GOLD OLD GOLD Kenr O,Aer vredurLV Indud.d-rv' Muri.l Mu.ia Muri.f Muriil - • . - - i OIk.rAredurh l d d=R di - nr . o o u ~I Da,.l.pan 9']U:32 53. S~K.'3] 9,'2!'32 1/1~51 10,3052 10-]G:33 10•]I,S] ' An.o~~r.r, D.nni+. D.nnia De :.~~u leneLMan G.n. Tavlar Dan fmrdin.r dill B JonaMon ll k Jdm., lom.+ J am.v kY kY 61e lek.r Gron, ean l.n ey e e - __ ---j -- - -- ---- I o ~ To introduce OLD CoLD kme-sEze. Lortllard errL- s ow„ . onc ar : ornmg a mes p Yotl.r.self, starring Fred Allen. These three TV productions took OLD GoLD's message to more than 34,527,000 Americans weekly. t: „- To, reach~ that vast portion of the American public which relies on radio for its entertainment and news, the Company presented Tioo for the Money, Queen for a Day, and Taytor Grant Neta•s on behalf of'I OLD COLD. ployed to advantage all its rllV and radio shows mQ KFxT~ " as well as the regularly scheduled program of '~._ The effectt%enessoflour KsNTadvertising,won magazine advertising. In additiunl dominant in\many honors in 19531 including being picked ' sertions in 246 newspapers wei-e lined up. FxperienCe with Kt nT in 19a3libeled the popu- ---Z_~ -- -----1^1 I of it's overall promotional yfgram, ~ d cont b- ~ dtina to Comoanv orokfs. This'. we'~ believe, is ' somewhat of a recorkf~ ~ As a resulti we t~e ablJ to give adritfional pro- Y motional supp~to our fllter-tipped brand~ " 1953 we laut~hed KF%:T T re ta su plenent,~ the w'Sdelv/nooular mvsterv+ drama,'Ihe ~'eb'' J on teletXon. and also assigned our radio news ~ romot- I i~ 'if ~ Ht dl' "~ t b ' lar notionl that it takes many years to geti our advertising dollfir, back in the Company's coffers:, KENT cigarettes were introdbeed''in the Spring ofi 1952. Aspreduction and distribution madl; pos- sible wider market availability, effective advertis- ing followed in its support. Consumer response was so gratifying that inl the Summer of 1953'. KeNrl was in the black and'' absorbing the costi Since Lorillard launch'ed Ameriean Indian . film, series,.75',000,000 hace' Diewedth'em: by as the No. 11 commercial for the "hard scllr AdvertisinqAge - The A'dtionaL 1_Vewspaper of Marketing. Throughout the year Lorillard put', its brand messa'gKsbeforemorethan 100.000;000 smokers weekly, getting the maximum I effectiveness from each dollar invested in advertising. Ih19a=1 the _ Companywill demand even greater perform'ance of each ad% ertising dbllar. Dennis Janncs, Oru(Sin.n.annoanc:er, also stars in TV shau;CHance uf a Lifetime. JackBailevsQueen for a Day on behal/ o fOLO. GocD.continaed as topradiop shorc. ODI r~

The Bronx River Mill, built about 1840' by Peter Lorillard, son o f the Company's f ounder, was at' one tirn:etlie largest tobacco-producin.gunit in the United States. The original'structure, now part of'the Bronx River Park system, stillstand's. To contrast this edifice with Lorillhrd'splans for tomorrozu, please turn the page..

Scene at tobaccoauction during the bttrleyntart Iast' )'ear shous Vice President and Director of Leaf Actiritie.sfrrin. H. Peak lcenterl) exaneia- inK crop. D'roagh't in 19533 h'elped boost prices:. Leaf C'osts Went Up Demand for flue-cured and burley tobacco hits all•timehigh oe.acca',PetcFS tn 1953 gave opportunity for ~study of a tougH lesson in the realistic trans- latiom of the economic principle of supply and demand. Supplies were cut when 1953's drought shrank the yieldlper planted acre. Surplus pro. duction, normal under ordinary times, was made impossible by the Government's regulations which limited the acreage for tobacco growing: Demand climbed to an allltime highi Helped along by the accelerated'trend to king-size ciaa- rettes„ which require more tobacco per unit. Thus. despite the fact that Gocernment support prices im 1953' were on the average less than in 1952, your Company had to pay a hig} er price last year for flue-cured and burley tobacco leaf than it did in 19.52: The higher costs were not sprung on us without warning. We anticipated increased leaf costs at the outset of 1953 and aceordingl~ rnade our plans for, purchasing bydeeelopinga rigid,timetoblefor our tobacco inventory acquisitions. Purchases were timed strategically so that we were success- ful in obtaining top quality leafias is our custom- but without the penalty of paying a premium to do so. The market; situation denied opportunity for sasings% buticareful planning enabled Lorillard to get a full dollar's worth of quality leaf' for each dollar spent. The Government has announced a smalli in- crease ini acreage for the 1951 flue-cured' crop which should' help in some measure to alleviate the supplic-picture forthe coining year, but it is doubtful if it will be sufficient to balance out the crop~losses, caused by the 1953 drought. On the other hand;, the Government has also announced its intention to decrease the19.5-1 burleycrop~ acreage. Bec,zuse n/'thef contihuing increasee in sales off otuntajorbrands:ihhasbeennecessarp.for usto.purchasegreater quantities o,f fNue-aued andbarier tob'acroo t han be/ore. 12

0 `.sales, advertising, andl merchandisi~g timetables 'and, as a result, the Director of 14'anufacturing and his assistants forgot the clbck and ignored 13 ~.-~ ~.. EverY plant. Worked at Full Capacity Introduction of king-size OLD GOLD and increased demand f or KENT added to regular production loads ORILLARD'SPRODU.CTIOS FACILI?rIE3 beg3n.the ~ year at fYtll capacity-and hadn't slackened the pace when the year ended. Time clocks were . punched on a two-shift, six-d{ty-a-week basis to keep upwitLthe increasing flow of orders. It w-asthe first year since the war that the usual seasonal slack months, normal to the Industry, were absent. Reason for the year's heavy manufacturing schedule was the introduction of OLD Got.D king~ size and the constantly swelling demand for KENT which added to normall production loads. Conversion to l•ing~sizea problem ~ The decisiomto put OLD GoLD on the market in king~size created many production probloms. NIam ufacturing equipment for producing the longer cigarette, packing, and preparing it for shipment, all required teehnological _. Machine parts to convert'~ standard eqpip ent, which had been farsightedly acquired Tn .,were flown to Lorillardl plants in Jersey, City 'and Louisville. Teams of factory specialists and hi~hly trained mechanics were shuttled betwee plants to es- changetime-satiing ideas andltech iques. Production deadlines were esta lished by the These prodt ction lines urorkerE'tuo shifts, six days a week throaghoa.tyear to meet deraandfonKEVT andkingsizeOrn GOLD;,6oth of mhich' added'tooar norunalprodaction(oads, theealendar until they hAaccomphshed the task of! stripping down equipment and rebuilding it for its new function. It became obti-ious earluin 1y53'that manufac- turing facilities forKe.a' cigarettes would be inadequate as each dhy's new orders piled up. A supplemental production unit! was hastily estab- lished in Louisville in March to enable the Cotn- pany more readily to meet the demand.. At theoutset of'1953'Lorillard hadlorders for new equipment anrl additional machinery to manu- facture KeNTS, but deliveries could not meet demand. As rapldltlsnewmachines didlarrise. round-the-clock crews installed themand theyy were put into immediateprodhction.

in Lorillard's Greater Service While steadfastly maintaining quality control'over current products, it constantly looks ahead for new ones . FEt[]~ CSGARETTE;, every pack, everycartoni 4ipped fromiour plants is being made better an, it' was last year, last' month and often just last week. From plant to smoker's lips, every phase of cigarette manufacture is screened by the Research and Development Department topro- vide assurance that the characteristic Lorillard'' quality will not be found wanting: Competitive marketing of cigprettes demandss that Lorillard's researchers stay alert to quality control. To keep Lorillard's products ahead of competing brands, it is essential that they be manuf4otured to tight specifications. Nothing, eludes the trained eyes of the laboratory men,pot tobacco. nor paper, nor the seemingly most! in- significant items w°hich go into our products. ~Trends crealenetc problenas At no time in the Company's history have the brand lbyalties,of the smoking public been less predictable. The swing, to king-size and filter, tipped cigarettes sums up the story of radicallyy changing smoking habits. Responsibility resides with research to see that Lorillard anticipates such trends. The current wid'espread'popularity of KENT with its Micronite filter provides one dfamatic example of how the laboratory contributes to the growth of the Com- pany. Having a king-size OLD GoLn ready to sat- isfy market demand was anoiher. Tomorrow the smoking public may require the,Industry, to pro- vide still anotber entrae on i the tobacco menu. Research enables us to keep pace with the public's changing tastes and always to have ready a Lori]- lardlproducti thati will keep the nationis oldest to- bacco Company's growth-curve steadily climbing{~ Leaf'buying challenges the lab ~ Ghe greatest singlecost factor in cigarettepro• duction is to aeco, w ic as been risingyearly., To effect! eeonomics in all related leaf activity - purehase, curing, aging, blending -the Research and Dex'elopment Depar2mentin 1973 accelerated its studies toiseek out new opportunities for sav- ings without sacrificing the high quality which identifies P: Lorillard Company products. It is the goal of the laboratory-, to establish scientific yardsticks by which all leaf activity may be measured. Intense emphasis is being given this project beoause, as Lorillard sales continue to tensilesttengthisonlj{, Analytieal balance weighs minutequantities,of, ain qµalityof productsi ash'to.determinenon-combustiblelea/elemems. . `. ~ ~ . .• [UrM.~ The~~d'rterminatio o% on ~e.in~.smok and~to- bacoo leaf.inco[oc~a fi~al~tration pr ;cedtue.

mount, more and more capital must be invested in tobacco leaf inventories. f Research guides the sales effort To aidiand guide the formulation of Lorillard's marketing policies and actions, marketi research at Lorillard has the assigped function of gather- ing, interpreting and' reporting to Management data which may be helpful in bringing into clearer focus the current and probable future marketing situation for Lorillardland the entire Industry. This activity provides Management with~acon- tinuing appraisal of the sales performance of all Lorillard'prodbets as against competition.,It pro- vides constant examiriation of marketing trends for both Lorillard and the entire Industry for the purpose of making periodic brand'sales forecasts that can be usedlas guid'eposts in budgetary and otherconsiderations. It further provides periodioconsumer surveys to make available detailed in- formation on such subjects as buying habit,,, brand preferences and attitudes toward various tobacco products and their uses, all of which en- ables Management to gain~marketing advantages over competitors. (r Market research givos intensive study to media ~` andi costs to determine the effectiveness of Loril= lard advertising in achieving desired objectives as compared with competitive advertising, and makes related consumer studies to determine the comparative extent of consumeraw^arenessandl acceptance of Lorillltrd's advertising messages. ~ Thus market research guides the way for the ,. efforts of prodi,ct' research making a cmnbma- tion that Manaeement ts confident w ill alw ays find L~oritlard ready and'.watUng to meet new trends. 17arketAesearch complements product research, helps evalie- ~ate the effeetec•eness_of'Lorillard's adrertising:and saless eflorts. Laboratory activity provides quality controlonall manu~ fReraring, proaidess safeguardagainst inferior products,. - La~illard-developedinsttument determines "draw" of'cig~ ~General, viewof.Lorillard laboratory, wh'ichwasresponsible' ar ttes and tightness of cellophane.wrapper on packages. 11' for derelopmenaof, KeNT cigaretrearrd king-sizeOLo riutn:

ASSETS December 31 CURRENT AssETS: 1953 Cash . . . . . . . . . . . . . . $ 7,622.449 Accounts receivable - customers (less $660:839' in 1953 and 8643;811 in 1952'fnr doubtful accounts and cash discounts) .. 11.629:297i Other accounts receivable . . . . . . . . . . . . . . .. . . . . 453.609 Inventories (at average cost): Leaf'tobacco . . . . 116,690;466 Manufactured stock and revenue stamps ... 14,188:749' Materials and supplies . 4,847:955 Total current asseta $155.132;525 PROPERTY, PuNT;AND EQutP!.tENT (asadjuste&Decemtier 31. 1932bvauthoruation of stockholders, plus subsequent additions at eost less retirements) : Land . . . . . . . . . . . . Buildings and building equipment Machinery and equipment . . . . . . . . . . . . . . . . . . CONSOLIDATED 991.8 7.4 7;9i9:883 15.421.127 S' 24,392,884 Less accumulated depreciation . . . . . . . 8,117:1,2•15 Total property, plant, and' eqpiprnent - net . ...$ 16,218.639 PREPAID EXPENSES AND DEFERRED CNARGES ... UNAMORTIZED DEBENTURE DISCOUNT AND EXPENSE BRANDs; TRADF.MARKS. AND GOODWILL . . . . . $1,3°s7,3 73 . . $ 952'5.50 . 424,6J5 $171991.088; $160;332,005 1952 $ 8:54-.344 9,602,442 323.262 110.093;684 10,365. 707 4,548. 705 $143.481.144, $ 22.605.222 7,519.378 $ 154085,844 S 1,340,361

LIABILITIES December .31 CuRRENr LIADILIrtes: 1953 1952 Notes payable i hanks ) $ 25.700.000 $ 49;700,000 Accounts payable . . . . 3,450,467 3,946,273 Debentures due within one year . 950,000 600.000 Accrued taxes . . . . . . . . 12.042.934 6;502.737 I Accrued payrolls . . . 1,225,779 801.317 Accrued interest 476.438' 270.000 Other accrued liabilities . . . . 317409 291.168 Total current liabilities $ 44'.163,02 7, $ 62;111.493 LONG-TERM DEBT: Twenty Year 3% Debentures, dire October 1. 1963 ($600,00Wtobe retired annuallyto 1962) $, 14,800,000 $ 15,400.000 I Twenty-five Year 3% Debentures, due March 1. 1976 ~ (ffi350,000 to be retired annuallv to 1975 14.650A00 15,000:000 Twenty-five Year 3;3/.1% Debentures, due April 1. 1978' ($675,000 ,tobe retired, annualll- 1956-197i)', 22,500.000 Total long-term debt . . . / ,. 3 51,9110.000 $. 30,400,000 CAPITAL AND RETAINED EARNINGS: 7% (Cumulative Preferred Stock (par value $100 per sharel - authorized 99,576 shares; issued 98;000 shares . .. . $ 9;800,000 $ 95800,000 Common Stock (par valUe $10'per share)- authorizedl5,000,000. shares; issued 2;852,854!89 shares in 1953; 2.496,281.89 in 1952 28.528.549 24,962,819 Additional paid-in capital (premiums 16ss expenses on common stock issued) __ 8,08 578' 3i(v33 863 Earnings retained for use in the business 31,463.934 29i413,840 Totallcapital and'retained earnings . $ 77,878.061 j i $ 67;820;512 TOTAL . . . $173,9911088 $160,332,005 See Notes I and 2, on page.18:. 17

CONSOLIDATED INCOME AND RETAINED EARNINGS Year Ended December 31 ° 1953 .. ~~. SALES (less discounts, returns, and allosvances) . . . . . . . . . . . . . $253,933,462 Cost of Goods Sold, Selling, Advertising, and Adkninistrat'ive Expenses . 232,777,823 t+ OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . $' 21,1 55,639 Other Income (n,et) . . . . . .. . . . . . . . . . . . . . . . . 152,148' Interest Expense . . . . . . INCOME BEFORE TAXES ON INCOXIE' 1952 $214,508,482 201,096:117 $13,412,365~ 255,184 8 21,307,787 ~ $ 13,667,549 ~ 2,520;216 2,026,607 Federal Income Tax . . . ., . $ 9,503,000 $ 5;798;000 Federal Excess Profits Tax State Income Taxes . . . . . 1,712,000 379;000 72;000 214,000 Total Taxes on Income N'ET INCOME . . . ., . . . . ., Retained Earnings at beginning of year . . . . . . . . . . Dividends on Preferred Stock ($7.00'per share), . . . . . . Dividends on Common Stock ($1.60 per share in 1!953, $1.50' in . . . . 29,413,840 ~ 28,1!43,205 $, 36;607,411 1 8 33,844,1147 . . . 1952 1 $ 686,000 4,4.57,477 ~ /// 8 686,000 3,744,307 RETAINED EARNINGS AT END OF YEAR . . . . .. . . . . . . . . . . $ 31.463~934 1 $ 29,413,`a40 Notes to Financial Statements (1) As a result of restrictions contained in the debenture indentures on the payment of dividends on common stock and~ the purchase, redemption, or retirement of such stbck, the amount! which could have been expended for such purposes at December 31, 1953 was limited to $9,550,094. (2): Funds held by disbursing agents f'or pay.ment' of preferred' and common dividends, debenture: interest, etc., aggregating $2,246,977 at December 31, 1953 and $511,918 at December 31, 1952, an&the related liabilities, have been excluded from the balance sheet. (3) Provision for depreciation amounted to S1,0511.457 in 1953' and 59.30,870 ini 1952. 18 41., . }'.

HASKINS & SELLS r CERTIFIED~ PUBLIC ACCOUNTANTS To~~ tlie~Board~ o f Directors and~ Stockholders o f ~P. Lorillard Company: 67 B'ROAD STREET NEW YORK 4 February 16, 1954. We have examined the consolidated balance sheet of' P Lorillard Com, pany and its subsidiary company as of December 31, 1953 and the related statement of consolidated income: and retained earnings for the year then ended. Our examination was made in accord'ance with generally accepted auditing standards, and accordinaly 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 state- ment of consolidate& income andi retafirred' earnings present f'airly thee financial position of'~ the companies at December 31, 1953 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. 1,4,&, W,& 19

M N ® In ., M m © A'shareholdev at Itrst~year'S rlnnua('dleetiqg relutingto onr, business, The audience- also takes.th'e/loo.toask.M1lnnage~menta.question tras-shownlu3estLorill6rd'doceume~ntarv t ... ~ npu,3A ~e~ ill -)R' ia~ o c ers anc Managoment Tozether -~i -,s © -" n411Z C-~ ION The:1 nnunl:Vleetingpracidesshareholdersan. opportuniiY, ta,get better acquainted wvth Lorillard executites and their problems. A'sh'arehoGNer and one a/our underu-riterss meet at Lastyear'sAmraat.bleeting andezchange neus on,s year's developments. „ ~~

k 1 r i i / P. L O~IILL~I7~D COMP~lNY CIGARETTES SMOKING TOBACCOS Old Gold - Embassy - Kent Briggs - India House Murad • Helmar Union Leader - Friends CIGARS LITTLE CIGARS CHEWING TOBACCOS Muriel • Headline Between the Acts Beech-Nut - Bagpipe Van Bibber Havana Blossom ~px~noLU~E _-- IAFa ~. ~ . HE~ADL 1

C i t 81,225'780

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