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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