Tobacco Documents Online

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. „ ~~