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To Manage Wisely... To Inspire Steadily... To Look Ahead 'Clearly These precepts guide your Board of Directors in administering the affairs of your company IIIE'RBERT A. KENT (1939), Chairman oj'tJie Board WILLIAx J. Hsl.l.r;vr49k1 i Fxecutire Vice Presidenl' JcnSr.PxiJL 13iAckv:aLL tQ9b6i Director ol' Mnnu1acttirinr ROBERT M. GANGER (1950), President L.EWIF GRCBER (1946) . Vice President and Dire,torot~Sal'es Frz_sN K HbeBSCFLL (19-4U') Vice 1'resrdent andGeneral' Manager, C:igarD'iz,ision JIu:LxI\` E. UA«'Le.Y (1950)', Vice Presidentand Director, I:I)rfI & ln,l"lor .aLDe.J.a znis (1950) Director ol Advertising llON~ALD~.A. H6SUk:fis0\", (1916) '.-~.T'eR.\nrer nnd~. Director, TlcentiethuCentrcrr'Fox~Film Corp. DB. H.axr,IS li. P.altxr:LL (1930) ,Director of ' Research F. GLA'DDF\-S};aRLE (1913) Ihdustrialist Iks-I., H. PeAr; r19;It311 1'ice President andDirector o), I eajPurchases TODD WOOL.(193a )~. Vice~President and Secretary. The Year sholcn in, parentheses is the Year of first election as a Director

ANNUAL PROGnE,s REPORT for the Year Ended December 31, 1952 zr~ `lair~G COomfzMI O Maker of OLDGoLD, EMBASSY andl KENT Cigarettes, ML-RIEL Cigars„and other Tobacco Products OFFICERS HERBERT A. KE\T . . . . . . . . . . . ROBERT 11'I. GA\GER . . . . . . . . . . W'ILLIARti J. 11ALLEY . . . LE WTS' GRUBER FRANK HOPEWELL IRVIi\ H. PEAK TODD WOOL ., GEORGE 0. DAVIES JOH\ Ji. DARBY . Chairman, of the Board . . . . . President ExecutiR-e NicePresident ...... Vice:President and Director of Sales Vice President and'Generat \Ianager of Cigar Divisioni V'icePresident and Direct'or of Leaf Purchases Vice President, Secretary and Director of Legal Department . . ., . . . . . . . . . . . . . . . Treasurer . . . . . . . . . . . . Compt'roller Other Corporate Inforniation General Counsel . . . . . . . . . . . . .. . . . . . . . . . . . . . . . Perkin:- Daniels & Perkins Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Haskins& Sells Transfer Agent . . . . . . .. . . . . . . . . . .. . . Thc New Iork Trust Company. New Iork. N. Y. Registrar. . . . . . . . . . . . . . . . . The latiional'CityBankofl\ewYork. NewYork; N. I: Adver6isingA-encies . . ., . . . . . ., LenneniSN'ewel1. Inc. (OLD GOLD. EaiBASSY; b4tiRIEL)~; Nour14 & Rubicam, Inc.(KENT) ; Albert Frank-Guenther Law. Inc. IiFinanci'al ii Executive Offices . . . . . . . . . . . . . . . . . . • . . . 1'i19 '11Ccst-l0th Street';'_\ew York 18, N. Y. Corporate Offices . . . . . . . . . . . . . . . . . . • • . . 15 Exchan~e Place, Jersey City, N. J. b'lanufacturina Plants . . . . . . . . . . . . . . Jersey Cit'1-, N. J.; Louisville, Kv.; Richmond. Va. Leaf-Storage Warehouses .. Louisville, Ky.; Richmond, Va.; Lexington„Ky..; Danville, Va.; Llancaster_ Pa.; Madison, Wis.; La Crosse. Wis.: Evansville. XX'is,: Windsor. Conn. St'earmeries . . .. . . . . . .. . . . . . . . . . .. . . Louisville. Ky.: Lexington. Ky.: Danville. Va. Fieldland'DivisionSales Offices . . . . . . . . . . . . . . . . . . . . . .. . In All Principal Cities Subsidiary . . . . . . . . .. . . . . . . . . . .. . . . . Federal Tin Company. Ilnc., Baltimorc. Md.

Our 1952 Results at a Glance 1902 1951 PERCE\ T INCREASE Tt''e received: From sales of our products . . . . . . . . . . $2114,508,-182 $188,447,430 14 io Our costs zvere: Federal' Internal! R'evenuest~amps . . . . $100;213;951 $ 84;464;807,6 19;c Leaf tobacco; other materials and services; and miscellaneous costs . . 79,257 349 72 340 41'r 1!0 % , Wages and'salaries . .. . . 18,317,437 , , 16,380,37 $ 1'2;0 Depreciation . . . . . . . . . . . 950,870 815,827 17% Interest paid to banks and bondholders . 2,026;607 1,377,536 47 ~7c Federal and State taxes on income and other taxes . 8.0-11,323' 7,941,924 1`0 These costs totaled . . . . . . . . . . . . . . 5208',807.5-10 $183;320;958'. I 1-1 `7, Leai ing us net income o f ........... $ ', 5,700.942 '. S 5,126,472 11 j'o" Whic izoas allocated asf'ollozos: Cash dividends . . . . . . . . . . . . . . . . . $ 4,130;307 8 4,355,-12 7 Retained for future growth . . . . . . . . . . . . 1,270,635 771,045 Our shareholders'investment at year-end zcas .. S ' 67,820,51'2 "~ 66,549,877 Which belonged to our shareholders as f'olloccs: Preferred shareholders . . . . . . . . . . . . . . . . 14 ;o 15 Common, shareholders(includina retained earninas). . . . . Andbenefitsthese mernbers of the Lorillard familx: 86~0 85~0 Preferred shareholders (year-end!) . . . . . . . . . . . . 2;0U9 2,096 Common shareholders (year-end) . . .. . . . . . . . . . 26.320 26,243 Salaried employees (',year-end) . . . . . . . . . . . . 11,322 1,340 Wage-earninb employees ( year-end ) . . . . . . . . . . . Results per comnton share: 5,179 4,984 Net income . . . . . . . . . . . . . . . . . . . . . ~ 2.01 S 1.78' Dividends . . . . . . . . . . . . . . . . . . . . . . ~ 1.50 S ' 1.50 Book value . . . . . . . . . . . . . . . . . . . . $23.24 $22.73 Annual Meeting and Proxy TheAnnualATeeting of Lorill'ard shareholders will be held on April 7; 1953. Notice of this Meeting isen« closed with this Report, along with proxy and' proxy statement. Approximately 74%, of our shareholders own 100 shares or less. As we said ini a previous Annual. Report: "This means we are financed by R1ain Street. N1"e like this situation because it makes small holders imporUant. It makes each proxy, for however few shares, spokesman for an individual who works, saves and invests in his future security." Your proxy is thus your way to approve or dis- approve of Manaaement's stewardslrip: Your vot'e is therefore important personally to 11lanagement. If you are unable to attend our Annual Aleetinb iniNew York on Aprill 7~, 1953', please sign and return your proxy before you put it aside. It will let us knonvof your continued interest.

A YEAR OF PROGRESS Signi ficant 1952 developments as seen by our Management ANOTHER YEAR of work has been added to Lorillard's long history, and' to Management now comes the privilege of giving, an accounting, of its stewardship to the owners of our Company. This we always look upon as an opportunity. For we sincerely believe that only when share- holders are fully informed- in as clear and con- cise a manner as possible - can they share wit6 us in Management a real: understanding of what makes our Company tick - and what will make it tick better in the days to come. Trends in 1952 The past year was no ordinary one. On the contrary, 1952 turned out to be a year of almost revolutionary change in the tobacco industry. and - we are happy to say - a year of progress for Lorillard under these challenging conditions. It was a year in which NIanagement served our shareholdersw-it'h the greatest sales volume in his- tory - and a year in which Lorillard' did better than industry averages in volume and earnings and also increased its share of the market. It' was a year in which the Government again took more than half ofl our earnings in income taxes - and a year in which there was no relief from its hold on leaf costs and selling prices. It was also a year in which kina sizecigarettes surged from 12 o to more than 18;'0 of total con- sumption - and filter types took on d'ramat'ie new- stature as a cibarette of emerging importance. Of many accomplishments, outstanding, was the gratifying performance of OLD GOLD, our principal brand. Its sales rose once again to mark its fifth vear of consistent growth - in the face of! an~ industrydechrae in the total sales of regular- lenath cigarettes. Over-all, the Company's net sales in 1952 reached 521-1.50$J82, or 14`,0ahead ofl 1951. to set a new high record in our 193-year history. Of the increase in sales of $26,061',052, ap- prosimately $16,000,000 resulted from gains in volume and the remainder from higher costs for Internal Revenue stamps, passed on in our selling prices since November 1, 1951. After paying all manufacturing cost's and other expenses, including Federall and State income t'axes, we had left as net! income f'or 1952 an amount of $S„700,9d2„ equivalent, after pre- ferred dividends, to S2:01 per common share. This was13'`,'c' more than the corresponding $1!.:i.d earned per share in 19511. Other steps ahead Bringing sales volnme to a record high was not the only achievement of Lorillard people in 1952. Another outstanding accomplishment was that of our Research and llanufacturing Divisions in perfecting the world s first cigarette of high filtra- tion - ournew KENT with the Nlicronite filter; int'rodlrced last March. KEVT's acceptance by smokers, we are de- lighted to report, has continuously run well ahead of usual norms for a new cigarette; and to meet consumer demand, we were able to double - and! At Annual'Jleeting,lastl•.ear, allofficensanddirectors of the Compano• n-ere onliandto drscussLorillord's operatdons and progress zciNz shareholilerspresent and, to ansuer qtiestdons. 3

redouble - our originall production~ capacity. In still another direction, we moved forward. As,a result of a two-year study of ourplant'h expansion needs, our Board of Directors last December authorized the acquisition of an~ 80- acre tract at Greensboro, NortL Carolina. Heree we expect to erect new warehousing and process- ing facilities this year to meet an urgent and immediat'e need'. In 11954, as part of a~ long-range expansion, we plan, to start construction on this site of al modern, highly efficient cigarette factory. The penalty of growth Inevitably, as any company pushes forward,~ it faces the reality of financing its enlarged opera, tions. Short-term bank Ibans ($49',700;000' at 1952 year-end) historically have met, in part, our leaf purchases during crop-buying seasons. With expanding operat'ions„ however, short-term bor- rowings tend to increase until, replaced periodi- cally with more permanent capital. For some time now, your directbrs have given this paramount question their closest attention. That additional permanent capital, to replace cur- rent borrowings, is needed is clearly evident. What f'orm the new financing should take, its amount and tiniing, are still under consideration. What lies ahead The significant shifts in cigarette demand that occurred in 1952 are now, well-known. In particu- lar, king-size and filter types confronted the indus- try with the fact of their very important growth. Today there is every indication that these trends will accelerate in 1953, bringing even greater changes - and challenges. Such changes always bring with them a: greatly intensified pro- motion activity. It may well be that 1953 will see the heaviest competitive :cigarette advertisingthe industry has ever witnessed. Whatever thetrends,, we have prepared our- selvestorneet them with aggressive action. In adv.ertising. in merchandlsing, and in manufac- tiuring our plans constitute the most realistic and scientific approachwehaveever developed for any year - tiet' they are flexible. too, tomeet de- velopments. Weheiieve they give us the soundiest basis vet for increasing our share of the market. This year, too. may see develbpments of ~ti'ide interest to ourindustrvin otherdia-ections. Price controls are due to exlpi're on April 30. 19-33'. if 4

YPe receired 455.93: pex s6am trom safes j$3.93 per comrrtem ahare was received in 1952 from sales of products (1951$75.49). 5.81 per common share or 09's went for interest'payments to banks and bondholders (1951: $,55); REYERUE STAMPS ~ l ~ ,Ys F / ~~ $40.15 per common share ou 46.7% $31.75 per common share or 37:0% went to the, Federal gpvernment'for I went fortleafitoba¢co, other pur Revenue Stamps'(1951: $33.84). chases and costs (1951: $28.98), r $3.22 per common shaoe or,3.8R went for taxes on incame, and other business taxes (1951: $3:18). f.17 or0.3% went to pay dividends on our 7% Cumulative I Preferred Stock(19511,$ 27)1 57.34 per common shane or,8.5 1 waspaid'out in wages and salaries tm our emplmyees 1951: $6.56). CBMMOR'.mvIDERBS' ~ $1,50 per common share' or 181. went as dividends'to Lbrillard cmmmon shareholders (1951: $1150) OUR 1952' PERFORMANCE - EACH' COM'MON! SHARE BEPRECIATrBR' >t~ $.38 per common share or 0.4R'was provided for wearout of plants andeqpipmemt (1951: $33). --~ I $.51 per commmn share or0.6S was left im the busness for, future growth needs (1951: $.28); not sooner, and present' excess-profit levies also die ou~~June'30i1953' unless extended. 1sand when these controls and imposts come off„ it should not onli~ remove obstructions to better operations but also permit'~ a: greater exercise of free enterprise in business. Diridertds The importance of dividends to our shareholdi ersis:something we never~ minimize. In declaring, them, our Boardlof Directors endeavors to make them as large as possible; consistent with the needs of our business. Although our 1952 income available for common shares exceeded that of 1951 by 13%, the prudence of retaining more resources to meet the needs of our gro~.ing,busi- ness seemed evident. With this in mind, our Board declared total dividend payments for the year ofl $1.50 per, common share - the same as in 1951. Shareholders will' be interested to know that. on this score, dividend payments to tliem~for the: five, past years, through 1952;,represented a 71 °1average payout of'net earnings available for com- mon stock: one of the highest in our industry. By contrast. Covernment figures for the last fiv-e years available I 1917-51 1 show that the average' pav- out for manufacturing corporations is only 38!';0. :d sineere tYibuteJ'lanyerirlences ofshareholder support andl understanding have come to us in the past'~},ear_ for ~shiehse'are sincerely grateful. NCe ~~elcomeat all times the acti~-einterest of the Company's owners in. our a$aiis and ice hope for a continu- ing expresc.ion of shareholder sentiment hv:letters. visits, and attendance at our annual meetings. Should you have any questions after study,ing this lieport. it is your right to ask them, either at'~ our Annual Jleeting on April i, 1953 or by maill We shall be delighted'' to ansv.en them. And, as is our custom, subsequent to the Meeting, alll shareholdorswill receii-e:a post-]IeetingReporrt. Andl now a word about our outlook. Perhaps our greatest asset'~is the fact that.although P Loril- lard Compan~-: may be old'and honorel in years, it is young andalert in id'eas and'action. 1'Iore- over, \lanagement has a stake ini Lorillard's gro~cth, because each director and nearly every officer owns some shares of stock. The past has been encoura,ing, andlprospects ahead give us reason for optimism. 1~~i tb resources greater than ever before.andlour corporate health andlvig.or at alllt'~imc hig~hs. n e looli forward to the futuren-ith confidence iiiour abilitg' to~make the most ofl ecery- opportunit} it sill bring. ~_ I V ~ -~U- TOBACCB PURCHASES } . . CHAIRIL4S'.OF TIIE RQ.aRnnRESIUE\T February ?7;19,i3

® B`UILDING- OUR BUSINESS- I N 1952, A brief review of activities and accomplishments- First... About Our People In teamwork and results, they made many real contributions P EOPLE make a company. And their ideas and enterprise make a company's progress. In 11952especially, Lorillard people demonstrated this. They produced an& sold more Lorillard products than in, any previous year. To achieve this record result„ they brought to their jobs new ideas, and new and better ways of doing things: In selling, in leaf buying, in man- ufacturing - in research, advertising, and finan- cial operations - their efforts and their quest for efficiency brought many important advancements. New officers Ini Management changes, Robert M. Ganger, formerly our Executive Vice President, was elected President on NIay 1, 1952, becoming our chief executive officer as Herbert A. Kent assumed' the Chairmanship of our Board. In his tenyearsn as President, Mr. Kent's magnificent guidhnce, his ableloadership; and long-range vision built great strength for tlie Company. He will continue actively to counsel' and inspire: us as we work to foster our growing business. On May 1, 1952, our Board also made William J. Halley, f'ormerly Vice President and Director of Finance, our new Executive Vice President, and elevated Lewis Gruber, Director of Sales, to Vice President. Both~ men have had long, prac- tical'experience in the affairs of our Company, and have made notable contributions to its progress. New depth of management In almost every company's development, it ar- rives at a point where it feels that an appraisal of its executive assets would be helpful in furthering its growthL Usually this is done by independent management' engineers, whose ob j ective viewpoint is especially valuable in such evaluations. Over three years ago, as a long-range step, our Company had such a survey made - to find' out how we could best capitalize on the executive abil: ity and' experience already in the organization;; and to determine in what areas we needed new talents not available from within the Company. As a result, we are today utilizing the over-alll executive ability of our top managerial staff with. greater efficiency. And, adding to our depth of management, we have attracted to our organiza- tion a new group of'~ younger men with specialized skills - in financialladmini'stration and budgetary control; in treasury operations, in public relations, in market researchy in industrial relations and' in manufacturing. Their average age is 39. Meanwhile, our new President, as one of his first steps, initiated a review and audit by the same management engineers of our progress in~ executive development since they made their orig- inal recommendations. As a consequence, further steps to broaden this activity are now under way. Moving, ahead with Lorillard Promotion from within the ranks is a basic Lorillard policy. Perhaps there is no better ex- ample of this than our Sales Department. There, as elsewhere, we operate ani active per- sonnel-advancement program, based on modern~ job evaluation~ and merit ratinga; which system- atically recognizes and rewards individual tal- ents. During 1952alone, 45 merit promotions in our Sales Department advanced men of qualified abilityt~olarger responsibilities. Each, gained! his basicLorillardiexperience by starting inthe ranks: At Lorillard factories, too, trainee programs are fittina,younger men to move up as need arises. They are taken into our plants from sehool~ and there rotated from one operation to another. Afterwards, they are assigned'to the aetivitiesforwhich they have shown the most aptitude. There, under the experienced eye of our factory managements; they have the opportunity to pre- pare for advancement to supervisory responsi- bilities as need and their own abilities determine. 6

SamplingofL'orillardbrandswinsfriersds and Lorillard,carlonfixtures.acta,sretailer's,cig-Promotiontie•insatspecialecentskeep,Larillard. buyers-arnong publieand Services. Heree tank' arette'store,'.'dispense all,leading brands, put' brands in public eye. This fdoatat Sfiss.4mericamengetOt.n('iot.nhn-aoeurersaFt.Hood,Tez. ours.one¢uaGbasisuith'largrrcompetitors`:, Pageant featured'OLD GOLD Dancing Pack, Our Sales Continued to Grow In 1952, we achieved the largest volume in our history ORILLARD SALES iwthe aggregate for 1952 not only set a new, record high. In peroentage of increase, our major brands also did better than industry averages, on~the basis of published esti- mates, widely accepted as reliable. For example: Industry sales of regular-Ibngth cigarettes de- clined nearly 3% from the preceding year, due largely to kiing-size encroachment. Against this trend„O0 LD GOLD; our principal brand, showed the highest percentage gain ofl alll standard sizes. King size units as a whole advanced 54`,ro. Here again, our brand''~EhtenssY recorded an advance of better than 80`d. Industry unit sales of alllcigars in our classes increased about 4%. By contrast, MURIEL, our leading cigar brand, ran ahead of 1951 by better than 18%. HEADLINE and VAV BtBBER, other Lorillard cigars, also showed strength after drops which followed price increases. Again in 1952, as in prior years, industry sales of smoking and chewing tobaccos fell off~ in a con- stantly narrowing market. But BEECx-NLT,, our chief brand in this field and the industry's leader.d show•ed a small sales gain counter to the trend. Our export sales,whiohare small'andigo largely to U.S:,forces abroad, turned up;,too, at a rate considerably faster than the industry average. Sales progress of Kent Last but' by no means least; sales of our new KENT filter cigarette, although still smalli moved up gratifyingly in the nine months following its introduction in March, 1952. As a new brand, noo comparison, of course, is possible with the i1`/o increase over 1951 for filter types in total. But as one index, KENT in these nine months attained a: volume even greater than Exisassy did in any of its first four years. Shareholders will be interested to know;,too, GROwrH OF OLD GOLD VS. OTHER 70-MM. BRANDSx s~~.. wot oiHLY 70- EP a sw.a.. oa cad. r; ,...~xa.d b~.wi Pw+ Faw«. ~ OrA.. b~d+. n'. M h'wmn enmwl pydi W.d wrimo 'sx •I I I I I I I ~ I OLD GOLD cigarette sales rose again in 19•i2 for the fi fthcan-secatire year: This.10-year chart depicts OLD Goao's growth in relation to other popular standard'si:e ('0-mm.)) cigarettes,. 7

that this result was achieved despite the fact'that KevT's initial distribution was confinedl to three cities New,York„Chicago, andlLos Angeles. Not for several months, such was the resulting de- mand, could KsNr be introduced in more cities. By year-endj however, production had in- creased sufficiently to expand KENT to high-spot, selectii•e distribution in more than 40 cities. At this writing, there are, of course, many localities where KENT is stillunavailable. We expectito~be in a position, production-wise„to fill all orders by this coming summer. Meanwhile, the Lorillard sales organization has absorbed KENT into its full-line activities in thee cities where it has been introduced. Also, duringg the year just closedj in line with industry trends, our sales force put increasing,drive behind king- size EntBnssY. These two brands,were energeti- cally promoted with our leader, OLD GOLD, using the effective tactics that our salesmen-merchan- disers have perfectedlso well. Progress in self sercice field Today, in a dramatic change ofl distribution patterns, cigarettes are the No. 1 packaged prod- ucUof supermarket! operators - yield us our great- est volume of carton sales: In fact, food stores now share more than 30% of the market. In this field of cigarette self-service, the record shows, Lorillard has been particularly alert. We early developed - and have since further im- proved - several types of ingenious merchandis- ing devices. These serve self-service food, drug and other tobacco outlets as a kind of "store withiwa store" for cigarettes. From the retailers' point' of view; they have proved particularly productive in increasing sales and profits per sqpare foot. From Lorillard's point of view, they accomplish aw all-important aim - they put our brands under the hands of smokers on at least' an equal basis withi the biggest com- petitors, in the vital zone of impulse buying. Another noteworthy aspect of the cigarette business are sales through vending machines which account for 16~/'0 of the industry's volume. Here„too, Lorillard~ foreseeing this trend, began four years ago to equip thousands of machines with merchandising devices to draw smokers to the QLDGOLD row. Oursalesorg¢nization In our sales work, great emphasis is placed on supporting the merchandising activities of the 1,300,000: retailers that selll cigarettes in this country - and the 6;000 jobbers that distribute them. The more we can help them sell Lorillard brands, the more it benefits them - andlus. For that reason. we train members ofiour field sales force;not as salesmen intheusualisense, but~ as merchandising specialists whose job it is to in- crease the profits of'those who handle our brands. This concept, intensified in 1952;,hasbeen, ac- tivated even more in our plans for the present year. For the challenges 1953 may bring, our promotion has been strengthened: with enlarged' programs for sampling and for KENT product demonstrations; with new poinGof-sale material for the duaP promotion of OLD GOLD and! Em- BASSY; with improved merchandising equipment for the better sales support of our jobbers and retailers; with special educational' activities di- rected to the medical profession and other groups; and with specific, balanced workplans for more intensive coverage oflterritories and brands. StoredualPromotions, on.Estsrsst'an.lOin Atmedical-conrentionexhibits,.KetvT'shiqhZy WindowdisplavsareanotheraspectofLoribGOLD;w arranged by Lorillard merchandisers, popular smoke demonstrationss impress doctors lard's energetic mere/m.ndi.sing. This one on, . help retailersselloar brands.atpoint-of.sales adthrisual proofof'tar-and-nicotine remosal:. MURIEL tled'in withsalesdrive.inside.store..

Our Leaf Costs Remained About the Same Government minimum prices continued to support tobacco at 1951 highs A CIGARETTE manufacturer's operations are ahvays governed by one basic fact: his princi- pal raw, material is an agricultural product. This makes Nature his partner. As a partner of Nature he is subject to special risks. Crop vagaries are chief among themi In recent years, the Government; by regulation, has sought to correct these natural laws. For the tobacco farmer's leaf, the Department of Agri- culture sets a minimum price. At auctions, this guaranteed floor serves as a base for competing buyers. Any tobacco not bringing the base price is taken by the Government. To stabilize the markets it must, in turn, control the amount' of tobacco coming to the auctions. It does this wherever possible by limiting the acreage planted. This has confronted the,cigarette manufacturer with a double cost hurdlerminimum prices andi a tight supply. Yet he has,needed'~ more tobacco to take care of climbing sales. So have his competi+ tors. The,result: tobacco costs have risen~ espe- cially on the choicer grades used for cigarettes. Meanwhile, it was not possible to raise selling prices to compensate - OPS, another arm of the Government, would not~ consent. Increased costs for leaf could be met in only one way - by taking it out of shareholders' profits, and by trying to offset the,burden by increases in manufacturing efficiency and the economies of greater volume: Know-howin tobacco buying, Even under normal circumstances, wise leaf buying is always basic to our operations. Loril- lfird, needing less tobacco than major competi- tors, can, to some extent, be selective in the. 9 At tobacco auction; President Ganger (extrea e left; , next to auctioneer); oarDirector of Leaf Purcbases Peak (center) and Leaf Branch Managers Pile and Harpring examine grades., tobacco markets it enters, and more nimble in timing its purchases. This gives us a better oppor. tunity to average our costs:. But tobacco;,like wine, must be aged. Basic in- ventories must always eqpal a two-years' manu- facturing,requiiement. And so tobacco buying is a long-range process which must take into account good and bad crop years, the future needs of~ ex- panding sales, a proper balance of needed grades, trends in prices, and the pattern of controls. While some flue-cured! tobaccos were higher last year, lower prices on other grades offset this. Not muohichange occurred in burley: As a result, our average 1952-crop costs unit-wise remained about the same for the first time in some years. Leaf must.age ahead, ofgroving sales: At 1952year-end, Lorillhrd carried incentories 102% greater than ten,years before. Comparable sales increase in same period was,83 %.

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Our Plants and Property Were Strengthened New Greensboro facilities will round out our production on long-range basis LRIllLARD factories produced more cigarettes and other tobacco products ati a faster rate in 1952 than in any year before. To make this possible, we spenti further money on making our plants and eqpipment more effi- cient. Such expenditures totaled approximately $2,000;000; much~ of which went for additional cigarette machines on EMsassY and KENT. The past year, also, was the first one in which we gained the fulllsaving5 resulting from the con- solidhtion of former operations, at b'Iiddletown,, Ohio, with those at Louisville. But there is a limitito our opportunities to force more production through existing factories. Two years agp we recognized this problem by setting up a special committee to stud+y the,eco- nomics of our leaf-storage, processing, and manu- facturing facilities and to recommend a long-term growth solution. Our committee made a detailed examination of all the factors involved and weighted them ac- cording to their importance to:Lorillard. An early conclusion was the desirability of new and ex- panded' facilities, modern from the ground up, and' separately placed in a location that would most perfectly fit the ideal cigqrette plant. GreensLaro, N. G.,.site of expanding. L'orillard'toarehousing,d processing and atant+facturing fac4lities, is ahbwn here in ~rela- trbn.to present plants at Jersey City, Louistille, Richmond., • LOUtSVILLE RICHMOND GRE*EHSaOAtO • JERSEY CITY Ke.vripr~oduction line.(p,artial't:ieu-) nt oar JersetCitvfactorr is only one of its kind~ in the sorld. KE-N-r's:S/icronite filter reguires.speeializedntach'ines, which Lorid(ardhelpedecnlte: This gave us many areas to choose from and' every modern advancement in technology and': equipment to consider. Site factors were carefulljrstzulied The plant site was the first objective. Here eight specific requirements had to be, satisfied. Our committee testedl a number of possible sites against these location factors: Finally, after exhaustive checking, we authorized the purchase, late in 1952, of an 80-acre tract at Greensboro, North Carolina: Under present plans,, we anticipate breaking, ground'this year for the first buildings - new leaf warehouses and accompanying processing facili- ties, to meet our most pressing need. In 1954, as part of the lono range program, we plan to erect on this site a cigarette factory of latest design, to incorporate all advances in ~ pro- duction efficiency known to science. Eventually, we expect to have a completely integrated ciga- rette-making operation at this location right in the heart of the tobacco country: Meamvhile„another manufacturing problem is on its way to solution - that of again enlarging a specialized production, line for KENT. Increased output is coming into balance with orders, and by summer we shouldlbe able to cover any demand. 12

Research Widened Our Sales Opportunities i. Applied science made present products better, searched fornew,ideas A I' LORILLARD, Management believes in product research because it believes in prod- uct integrity. It uses product research as a tool of sales enter, prise. First; so that better Lorillard tobacco prod- ucts will attract more,customers. Secondly„ so that new Lorilltird products will anticipate customers' needs and desires. Over the past two years, our research activities for the present and future have more than tripled. Although our physical facilities may not be the largest in the industry, we consider the,brains be- hind them among the besti Furthermore, we make it a practice to tap the talonts,of leading outside authorities on many of our research projects. Well-known laboratories, institutes and other consultants work with us continuously on future plans. The development of KevT, our new cigarette of high filtration, is a perfect example. Product research in action We knew that in Switzerland - a country most aware of health factors - filter cigarettes had come from nowhere to over 50% of total con- sumption in a few short years. We knew, too, that in other countries filter cigarettes were showing a Plethysrnograph test'rnemsures,fnger con- traction during smokirsg. Other filter types reduce hand si_e 6 to 8 cc., KEtvr none, notable trend upward. We also knew that no American or foreign filter brand removed more than a slight amount of tars and nicotine. That's where product research took over. Our extensive chemical and physiological investiga- tions, assisted by outside consultants, established that a 40% removal, at least, was the desirable minimum - the threshold of~ immunity for sensi- tive smokers. And medical research hadl already determined'that about one-third'of~ all smokers are sensitive to ttirs and nicotine. Thus applied research dictated the qualities that eventually emerged in KENT - andl defined the market for the product itself. Further research in our laboratories created the cigarette that met these specifications, then perfected it as a market reality. And the same kindlof research enterprise willlcontinue to keep KENT ahead of competitivee developments - and the needs of smokers who want the best in filter protection. Today, KENT, like other Lorillard brands in manufacture, runs,the gantlet of continuous lab- oratory scrutiny, to keep it competitively superior in materials and processing at every stage. Our product-research activities are supported' by still another current develbpment. Accelerating market-researeh~ operations keep us abreast - and ahead - of! shifts in consumer smoking habits, regionall preferences, trends in competitive brands, the performance of our own brands, andi other consumer reactions. Thus, as, our market research watches thee trends in consumption, product research works to develop and' perfect the Lorillard products that meet such trends. In skin-temperature test, sensitire smokers show significant'dropdiae to bldod curtail- raertt. With' KeN'r. hardly anyY drop occurs. In tar-a.nrl-nicatine removal, Ke-vr's .M1iicronite filter, when tested agaiast others,, perfprms up to seren times more effectively. Millions see sameproof an The Web (page 3fi) _

Sound Human Relations Were a Constant Objective We look upon employees' well-being and public service as prime obligations T HOSE who live by the public, we believe, owe itian obligation beyond thatof providing fine products. That obligation is to be a gpodi corporate citizen. Ini1952our Company fulfilled its social respon- sibilities in various ways: We gave employment to more people. A 12 i'o greater payroll was con- tiibuted to the national income. Our pension pro- gram was widened with a new plan to cover the ` retireutent! of plhnti emp]oyees, supplementing the benefit5 Lorillhrd people already receive under Company-paid group life insurance, sick-benefit plans, vacation-time allowances, and coordinated sports programs, These benefits, with, workmenis compensation, and old-age and unemplbyment taxes, cost $1,8-I9,000 in 1952. Ih a move to assist our industry - including leaf growers, distributors and retailers - we took part' in a vital l program to educate the public on the amount of cigarette taxes itipavs. Preliminary opinion research had found' that only 9% of smokers realized the Federal stamp tax was$t a pack.Following,the industry, campaign, this9;chad grown to 32`,~'e„ a remarkable increase of Lorillard's fit'e documentary mories on the American Indian hare been seen by orer 40,000,000 people: Educators, religious leadcrs and otherss eommendthem h'ighlyy as a public senice. MEM Employ'ee.groupsat ourplantshear regularly from our Management an the Company 's progress and'objectites: Here._11n G'anger,:ourPreside.nr, td.lksinformally to a snp,errisory group at Lorillard's Jersey City. plant. OLD ~GorD basketball team, . meade up of \-eu•, York Office men {,exemplL fies the emplorees' sports program forall'plants, which the Companry helps to.organire and supportonan actire basis. Team leadss its.League. more than three times in smokers' tax awareness. Lorillard'also served the general public by sup- porting,17campaigpsinthepublieinterest (Red Cross, March of Dimes: etc. I; by television enter. tainment of high popularity; by, films on Indian lif'e for schools, churehes, and others; and by earnings that made us a more prosperous and stable unit in theoountry's economy. Our loyal employees 1blanyemplbyees have invested a lifetime of work with the Company. One out of every seven has served it 15 years or more. Relations with 1-4 unions have always been harmonious - and re- mained so in 1952. To help meet rising living costs, the Company once again, as in 1951, ggave wage increases all albngthe line. 9'ndisothat em- ploy,eescouldimake their effortsanore productive. we proN ided an eveni greater pool of resources. which reached nearly- 41U00per worker. In all these activities, our simple objective is always this: to make Lorillard. alfeady a good place to work- an evenihetter place to work. 14

Every Advertising Dollar Worked Harder New techniques enlarged the dimensiona of our pre-selling ejort PROBfiBLY no consumer product is more sensitive to adbertising than cigarettes. They are asked for by specific brand names - millions of times al day - at the counters of 1,300,000 re- tailers, who hand over the smoker's choice. This brand'.loyalty is principally established by the force of advertising. No cigarette can succeed without iti And the extent to which~ a brand in- creases its share of the, market is the extent to which it gets effective advertising supporti This is the reason why advertising is a top- management function at 1J,orillard. Because a substantiall expenditure i's involved, our first care is to see that it is investedlwisely. In thi's, we make wide use of scientific consumer-jury, and other advertising research, comparative me- dia analysis, along with modern budgetary con- trols which closely govern every dollar of outlay. Equally important, every major advertising move wherever possible is scientifically pre-tested under actual market conditions before we adopt it. In this way we can determine how well the idea pays off! in profitable sales gains. How this policy helpedlus solve one of our big problems in 1952 is something we thiink our share- holders will be interested in learning about. Like other national advertisers, we faced the challenge of tremendous increases in television costs„arising,from the widening coverage ofl this dynamicmedium. Also, like most cigarette manu- facturers, we had the costly problem of stepping up promotion behindlour king-size brand, to cap- italize on this expanding, market. Ini addition. there was the introduction, exclusive to:ourselbes, of KENT - the first cigarette of high filtratiom Multiplying our brand coverage. In our planning, we had anticipated these de- velopments - and when they materialized, we were ready,for them. This planningbegan late in 1951, and involved concepts entitely new to our indUstry- If they proved', successful, they would answer these various problems reali'stically - put proper adi,-ertising support behind each of our, brands - and benefit earnings by making our net- work advertising dollars do even more work with- out'additional cost. O0 ur plans had their origin in a successful idea evolved in 19511 We fbund out then that we could hitch advertising of MURIEL cigars to established radio and television programs - and achieve not only greater impact for this brand but eliminatee a network budget for it: Its success led to the next step. Why not add kina size Ettevssx commercialsto OLn Gotn pro- grams? But this presented a different problem: twocioarettes of family relationshipwere in- voh-ed; and the,use of one network program to,ad- vertise two cigarettes had never been done before:. { Pairs,of'contestants ttv for cash ateards on our lireh'v telerision shmc.. The Chance.of a Lifetiine istsltatprofessional'enterta.inersstrire for on Two forthe 1.tonev. Its star is Indiana humorist Herb Shriner (center), off ourteleczsion show of thesame name..It stars OtJD. Gotn's famous-and hornespunwit;iriacomedy-quir.fprmat, f'eaturingOtoGoLD .cigarettes.. persu¢.sire-DennisJames.popularicith'millionsof'rieu'erseren-uhere:

Each. ueek' 11,000,000 rieurrss sitt entranced by The Web'.s real-lIfe mystery.drama. Jonathan Blake's Ksnrr demonstrations have become classics of TV selling. Queen for a Day, heard ~coast-to-coast for OCn GOLD on daytime radia fue. daysaweek, has crowned its 2QOOth Queen. Genial Jack Bailey is the naaster-of ceremonies. Club Embassy nowpresents blindy Carson, rising}'oung songstress, as sta, and features Florian Zaliach, excit-ing riolinut,.in a pleasautmusical quarterh'ouron TV. Testing for results Quietly, therefore, we began to test the idea, first on a local level, then on,a regional basis, and finally on our national television-radio network. Without exception, we found thatwe could pro- mote OLD Gonn and EMBASSY on the same pro- grams, at no additional network cost, withoutone brand stealing the other's market. Actually, both brands did better and EXtsASSY's adbertising im- pact was more than doubled. With this result established, we then re-evalu- ated everything we had been doing. Shifts in pro- gramming and scheduling were made. And by last Fall wHen we were through, EMBASSY was sup- ported on four programs instead' of~ one; KENT got one of~ our best shows for itself; we attracted bigger audiences over-all - and nothing was added to our network costs. Now, on Tuesday nights over NBC, instead of a 45-minute program exclusively on OLD GOLD, we present Two for the Money, an exciting half-hour comedy-quiz, starring,humorist Herb Shriner. An establishedl success already, its combinedl audi- ence of 16;916,000 on radio and'.television is cur- rently larger than any we have ever attracted. The television program features Oi.o GOLD; its radio simulcast also covers EietsassY-. The remaining 15 minutes of television time on Tuesday evening are taken by Club Embassy - exclusively to promote that brand: This musicali variety show, now, stars Mindy Carson - rising young song stylist -and features,Florian ZaBachi foremost violin personality, famous for his liri1- liant recording of "Hot Canary" and other records. With EMBASSY advertising support enlarged by these two shows, we were able to give its former program, The Ilreb, to KENT when thiss show resumed last Fall on Sunday nights over CBS: Already the visual demonstrations of KENT filter superiority by Jonathan Blake have become classics of television sales conviction, Other advertisirtgdevelopments Meanwhile, without increasing our over-all costs, we were also able to put further promotion behind both OLD Cocu and E+ts,isaYby adding two newscasts which started last October over ABC - to cover the 60 c,"o of American homes which do not yet have television. These Sunday- evening news shows - Taylor Grant News for 16

A QUICK LOOK AT LORILLARD'S NETWORK ADVERTISING Twefer. FheMoney Chenseof, atlt.rim. Club Embouy. The Web Queenfbr, aDay MondoyMorn-~1aylmr.Grann Iny.H.adtlnes . N.ws ' Audience (w..kly) 16,916;000 6;365,000i 3,896,000 11;000,000: 11,512,5W 3,325;000-' 3,831;800 Formel- Cernedy~ Qui¢ Vanielry Show MusicalI Vdriaty Mystery Droma j Pub'Lic-Servire Givewoy Nescass I Ndwscastl St., Herb Shriber Dennis Jarnes Mimdy. Car.on. J6nath'an BI6ke Jack'. eoiley Don Gardiner len8eordsley Taylor Grane Nelwork NBC ABC NBC CBS Monool ABC ABC Day.6 Hour(EST): Toesdeys~ 10:00-10:30 PM~ Thonsdays 8:30-9:00 VMI Tuesdnys. 10:30-10.45PM, 5undays , 10:00-10:30 PM Mbn, tNru.Fridlay.: S~ndoys 1/45-12:00 AM6:15-6:30 PM, S~undoys 9::15-9:30'-0M' TV'and'orRodib ' TV~BRodib TV TV TV. Radio. Rodia Rodio. No.afStetions-Ty 50~~1iv. 25 h~Irn 281i.e 2lifilnn 261i:e 38 flnn 27.n.ee 24 filIna - - - Nb..of Stations-Rodim 195 - 537' 310 ~ 317 Producr Feetuned Old Gold Old Gold Emb'assy Kent Old'Gold. Emb'a..y Old Gold Other Producls 16duded-TV. Mbviel Muriel 6. Embossy. - Muniei, - - - Other PredScN Inclnded-Redio Mur4el16 Embassy - - - Ernbas.y HAodl3ne Heodline Dote Be9am SsaF~ 30, 1952' May. B,.1952 Oct; 7, 1952 Sept: 28„1952 i Jan.,1;,1951 . Oct.26,.1952 Oct.26,.1952 Announaer Denmis Jemee Denni. Jams Bob wright J6nmlh'on Blak. I Gene Baker I DonGardiner ' LbnBeardsley I Tcyl'or . Gronr OLD ~ GoLD and Monday Morning Headlines for EMBASSY, reach an added7;157',000!prospects. For a long, time now, the public has taken Dennis James to its heart. Of provable added value, therefore, was our sponsorship, beginning l'ast May, of'l his own show,,Ch'ance o/'a Li/etihi:e, in whichi,as star, he speaks as,persuasively for OLD GOLD as,he dbes on Two for the Money. This, show is telhcastl each Thursday night, over ABC. Queen for a Day, whose target: is carton saless to housewives, continued, as it did in 1951, to ~ winmew converts for OLD GaLD five days a week on Mutual daytime radio,,The original Cinderella show, iti draws 11,513,000 listeners per week. Geniall Jack Bailey is master of ceremonies. Beyond' this, full-color insertions in leading national weeklies every other week did their im- portant part in pre-selling millions of readers oni Animated TV Sluriel appears as a regular added sales mes- sage.on Lorillard teleeision shows. With her help, 1952 sales ofhftlalEt cigars adeanced substantially'over theprioryearr the fine smoking, pleasure that OLD GOLD gives. Ih sum, Lorillard, during 19b2,,put 82,000;000 pre-selling messages a week liefore smokers across the land - to persuade more smokers to buy our brands. Shareholders will be interestedlto know thati the substantial 1952 increases inl sales of Lorillhrd brands, to which this ef3ort:contributed, were aehieved'withl an actual reduction~in total advertising costs per dbllar ofl sales. This year, we shall continue to utilize everyy means at hand to geti the most out of! each ladver- tising dollar we spend. Competitive developments may come fast - in new brands, and in intensi- fied! advertising competition for the public's favor. The challenges will be many,-but each one is also' an opportunity. The plans we havee alteady developed make us ready - andl flexible'. - to make the most of'l them as they come. National magaxineads play their part in Lorillard's over.a1L, pre-selling, effort. Four-color insertions ecerli . other u-ee.>Lput' , OLD Gol-Dbeforeap,ubPic th'atreads.moretodarthan erer..

P. Lorillard Company CONSOLIDATED AS S E T S. DpcernLer 31' CiGRRE1T' ASSETS : 1952 Cash in banks and on hand . . . . . . . . . . . . . . . . . . . $ 8;34i,344 Accounts receivable-trade I less reserves 1952, $643;811; 1951, 8639:1I73)~ . . . . . . . . . . . . . . . 9;602;442' Other accounts and notes receivable . . . . . . . . . . . . . . . 323.262'. Ihiuentories, at cost:: Leaf tobacco . . . . . . . . . . . . . . . . . . . . . . . . 110.093.684 Manufactured stock and revenue stamps . . . . . . . . . . . . . 10.365,,707 Materials and supplies. . . . . . . . . . . . . . . . . . . . . 4.5-18, i 05 Special deposits-contra . . . . . . . . . . . . . . . . . . . . 511.918 Total current assets . . . . . . . . . . . . . . . . . $143.993.062 PROPERTY, PLANT AND EQilIPME\T : As adjusted December 31, 11932 by authorization of stockholders, plus subsequent additions at cost, less retirements . . . . . ., . . . . $ 22.603:222 Less : Reserves for depreciation . . . . . . . . . . . . . . . . . 7,519.378 Totaliproperty; plant and equipment . . . . . . . . . . 8 13,O86:84-1 BRANDS, TRADE MARKS AND GOODWILL . . . . . . .. . . . . . . . . 8 1 DEFERRED CHARGES: Prepaid insurance, advertising and taxes . . . . . . . . . . . . . ~ 7211,102 Unamortized debenture discount and expense . . . . . . . . . . . 424.655 Miscellaneous . . . . .. . . . . . . . . . . . . . . . . . . . 619.259 Total deferredi charges . . . . . . . . . . . . . . . . ~ Li6:~,016 TOTAL . . . . . . . . . . . . . . . . . . $160.8-13'.923 1951 ~ 7,530.826 8,952.647 448'.285 88.118,882 9,124:404 4, T52.393 666.213 $119,693.660 8 ' 21.342J41 7;141,606 $ 14.200.835 680,324 450.3611 560.221-3 8 1,690.910 3135.-185.396 18

and Subsidiary C'©n1pai><v BALANC~E' SHE~~ETS, LIABILITIES DPI'ei7t r7PT .31 CURRE\T IIllYBILrI1IE5: Notes payable-banks . .. . . . . . . . . . . . . Accounts pay-ablc-trade .. . . . . . . . . . . . . Twenty Year 3`Debentures I due within one N~earl Accrued taxcs . . . . . . . . . . . . . . . . .. Accrued payrolls . . . .. . . . . . . . . . . .. Accrued interest! . . . .. . . . . . . . . . . . .. Other aecruedlilaliilities . . . . . . . . . . . . . Dividends, ete.-fhrnds ondepositn contra ......Total'icurrent liabilities . . . . . . . . ., 600.000 6.5 02. 7 35 001-31 i2-10.000 291-1fitl 5119113 S 62.623.411 Lo\[:-TER\I DEBT : T,wentv Year3',i~(' Debentures, dueO'etober 1. 1963 . .. . . . . . . ~', 15.-100.0001$600;000: to be retired'annuallyx 1933-19b2~t 1iventy--five Y'ear3;'c Debentures, due b'llarch 1.,1916....... 15.000.000 ($350,000 to be retired annually 1934-1i9i3! _ Totial long-term debt . . . . . . . . . .. . . . . ., . S 30.-100.1100 CAPITAL STOCK AND SURPLILS:Capital Stock : 7'/'( Cumulative Preferred, par value S100 per share: Authorized 99!5i61shares Issued 98!000!shares . . . .. . . . . . . . . . . . . . . Common, par value 510 per sbare: Authorized 5,000,000 shares. Issued 2:496:201.$9 shares .. . . . . . . .. . . . . . . . Paid-in Surplus . . . . . . . . .. . . . . . . . . . . . . . .. Earnedl Surplus, as,per statement . . . . . . . . . . . . . . . .. I,,S1!9.3 72.160 not available for cash dividenrk on coanruon stock under provisions of debenture indenturelTot!al capital stock and surpllls . . . . . .. . . . . . . .. TOTaL . . . .. . . . . . . . . . . . . . $ -19. 700.000 . . . . 3.946.273 S 9.01)00.000 2;1. 962. ~;19 3.6!13.."53 29:-1i13.3d0 S 67.1320.512 s160.8 13~.923 1951 ~ 26.000.000 3'.405.0116 600.000 6-331.961 435.069 21.-1i.300 222. 1-60 666.213 8 31.933.519. $ 16.000.000 15.000.000 S 31.1)110.000 S 9,800.000 2-1L96•2.i;119. 3'.613LC1.,;3' 25.1-13.20b ~ 66.519.5 , S 13 5.~1 ; 3.396 19

P. Lorillard Company and Subsidiary Company CONSOLIDATED INCOME AND EARNED SURPLUS 3''car~ pnd'ed~Decem6er~ 31 1952 SALES, less Discounts, Returns and Allowances . . . . . . . . . 821-I.508'.482~ Cost of Goods Sold, Sellina, General and Administrative Expenses 2~01,096~;117~ OPERATING ItiCOaE . . . . . . . . . . . . . . . . . . . . . . . S 13,412,365 Other Income and Expense Ilnet), 255.184. $ 113,667.549 Interest on Lona-Term Debt . . . . . . . . . . . . . . . . . . . 8 943;500 Amortization of DebentureD~iscount an& Expense . . . . . . Other Interest-principall}- on bank loans . . . . . . . . . . . . . .. . 33,206 1i,049:901 $ 2.026.607 Il\CO:4SE BEFORE TAXES ON INCOME . . . . . . . . . . . . .. . . . . ~ 11.640.942 Federal Income Tax . . .. . . . . . . . . . . . . . . . . . . . ~ 5,,798!000 Federal Excess Profits Tax-current year . . . . . . . . . . . . . 24;000' Fed'eral Excess Profits Tax-prior year refand . . . . . . . . . . . 96,000 State Income Taxes . . . . . . . . . . . . . . . . . . . . . . 214.000 8 5:940:000 NET IYCOINIE FOR YEAR . . . . . . . . . . . . . . . . . . . . . . S 5,aO0:942~ Earned Surpl'us at beginning of year . . . .. . . . . . . . . . . . 28.143.205 85 33.844.147 Dividends on Preferred Stock ($7.00 per share) . . . . . . . . . . . 8 686.000. Dividend's on Common Stock (81.50 per share). . . . . . . . . . . 3.744.307 S 4.430.307 EARNED SCPRPLU6 AT END OF YEAR . . . . . . . . . . . . . . . . . . ~ 29.41I3'.840 Depreciation' provided: 1952, $950,870; 1951, $815,827 Accountants' Certificate To the Board' of Directors and Stockholders o f P. Lorillard Company: We have examined the consolidated balance sheet of P Lorillard Companvy and its subsidiary company . as of December 31, 1952, and the related statemenb of consolidated income and earned surplus for the year then~ ended. Our examination was made in ac- cord'ance with generally accepted auditin; standards: and accordingly included such tests of'. the account- in~,record's an& such other auditing procedures as we considered necessarc, in the eircunlstances. 1951 $~~I88~~.44~r.430 176.034~.189~ $12;413,241 92.233 ~ 12.321.008 S 11031701 30.058 312; 7 7 7 8 ~ 1.3~7 7_5361 8 10.943.4~ 7 2 ~' 5.302.000 286,000 229.000 S' 5.817.000~ 5.126.472 27 .3 72. Lfi0 ~ 32.498.632 ~' 686.000 3:669;427 S4.355.427 $ 28.143.205 In, our opinion, the accompanying consolidated! balance sheet, and statcment' of consolidated income and earned surplus present fairly the financial posi- tion of the companies at December 31, 1952, and the' results of their operations for the year then ended, in conformity with generally accept'ed ac- aounting principles applied' on a basis consistent w°ith~ that of the precedina, year. New lork. N. 1. February 16. 1953' IIASKI:IS .Q' SELLS CertET~ed~ Puiil~ic .1~ccount~ants~ 20

TEN-YEAR COMPARISON! OF GROWTH TRENDS Year Ended' Net Dec.31 Sales 1952 821-1',508,-182 1951 188,1-17 ,430 1950 ' 167,936,931 19-19153,500;1'23 1948' 140,27'9,236 1947 127,919;655 ~ 1916 124,047,263 1915 126,129,130 1944 123; 790,406. 1943 117,331,986 P. Lorillard Company and Subsi~diarv Co~mpani: Income L'ejore T~nres on Income $111,640,9-12 10,943,472 1'2,632,7 68 11,211,133 9;1=13,339 8,946,625 5,661',513 7,6-15,17 0' 9,928,791 8,3' 16, 7 89 O P l;'K AT'1 ON S Inrorne Dividends Income and per per Earned Excess Net Conrmon Common Surplus at I'ro,(itls Trrxes Income Sh'are' Share end'of,}ear $5,940,000 85.700,94'~2S52.0'1 ~1 8'1.50', ~29;-113;8!-105;8'17,000 5,126,-1721i.73I 1.50'i 28;113',2055;895;000 6;737,768 2:69 1.85 27,372,160 4,387,0001 6;824;1332.731.75 25J 76,601- 3;498;900! ~ 5,64-1,939 2.21 I 1.5023',270,0203,430y7M 5,515,925 2.15! 1.50 21,680,9802;149;300 3,512,213 1.26 1.00 20,220,950 4,110;713 3,534,-15.7 1.27, 1.00 19,236,360 6,320;9423,6071:, ;-19 1.301.0018;634,-195 4,774,427 3,572,362 1.20" '1.2017;961,168 rINANCIAL POSITION At Total, D'ec: 31 In rentories 119529 125,008;096. 1951 101,995,679 1950 84,461,1811 1949 74,992,955 1948 ~ 72,538,273 1947 73,23-1,247 1946 ~ 77,834,711 1945 ~ 87,196,404 1941 69,204,385 1943 61,946,754 Morkiag Capiral S81,369,6511 81,658;130 69,907,552 70,474,585 69;531-11,669 69,8c) 3.2 04 69,-176;2 111 71,458;027 70,201,362 69,926,166 Hroperti; I'lhnt' and Equipment Book I irhre GrossNetalterShareholders~ per Com. Amount Depreciation Znce.ctment mon Share• $15,085,84-1 8 6 7 ,820.J12 $23.24 14,200;835 66,5:19,877 22.73 12;734,785~ 60;876,008 22.73 11,09-L041 58,980,45321.89 10;509,=10Gi 56,773, 869 20.91 9;153;15055,184,829 20.20 8;456,3'19 53,724,,1.99 19.55 5,793,091 ~ 52,740,209 19.11 5,984,O:r'8: 52,138,344 llc'o.816;3'41,55251i,465,01718.55 $22,605,222 21,342,=1-11 19,433,534 117,707,279 16,726,561 15,291,608 1.4,581,737 111,806,081 11,8118,588 111,793,960 * Based on number of shares outstanding at end of each year:.

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