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BOARD OF DIRECTORS FRONT ROiF": (left to right) Irvin$. Peak, Frank Hopewell, Robert M. Ganger, Herbert A. Kent, William J'. Halley, Todd IP/ool BACK ROW: (left to right) Alden James,,?Vleluin E. Dawley, Donald A. Hen, derson, Lewis Grulier, Joseph J. Blacknall, F Gladden Searle, Harris B. Parmele

T47/LC ANNUAL REPORT-1950 OFFICERS Herbert A. Kent Robert M. Ganaer Todd Wool WilliamT Halley Frank Hopewell Irvin H. Peak . George 0. Davies Joseph J. Blacknall Melvin E. Dawley Robert M. Ganger Lewis Gruber William J. Halley Donald' A. Henderson . . President Executive Vice PresidentVice President and Secretary Vice President. Vice President Vice President . . . . . Treasurer DIRECTORS Frank Hopewell Alden James. IIerbert A. Kent Harris B. Parmele Irvin H. Peak E Gladden Scar]e. Todd Wool GENERAL COUNSEL - Perkins, Daniels & Perkins TRANSFER AGENT-Tlze New York Trust Co., New, York. N. Y. REGISTRAR - The National CitryBank; New I^ork; N. Y Executiue Office - 119 lT'est 40th Street. t1'ew York 1'8;A'. Y Corporate Office - 15 Exchange Place, Jersey 00% ,1': J. 1

® IMPORTANT NOTICE Our business having reached proportions whereby con- tinued acceleration requires additional capital, a refinanc- ing plan has been adopted and is presented to you with this report in the form of a supplemental letter. The recom- niended plan is the result of several months of diligent research conducted by our special committee appointed to make this study and headed by W. J. Halley, Vice Presi- dent, Director of Finance. A PROGRESS REPORT FOR THE MEN AND WOMEN WHO FINANCE' OUR ACTIVITIES WE tssuE herewit'hi a detailed statement of' your Company's operations for the year 1950 - a crystal-clear picture of how your Management has used' the funds you supplied to continue product growth and to enhance the value of your investment. It is our acknowledgment ofl your confidence as evidenced by your investment without wliieh we would not be able to furnish the tools that'y in turn, provide a livelihood for some six thousand fine Americans and their families. In writing this letter I like to feel I am personally interviewing each stock- holder in the interest of' readership and study of a report d'esigned' for clearer and easier absorptioni of', facts. It is made up of subsections, illustrations and text, giving y.ou, a good idea; of what we have done and plan to do as we turn the mid-century corner. You willl understand how, in a highly competitive business, we have been able to move forward in the cigarette field with a per- centage increase considerably greater than that of the industrv. Earnings before taxes: for 1950 amounted to S12;632;i68.18, a new high record in the Company's earning history, due in a large measure to the Com- pany's dollar sales of $167,936,931.43' in 1950; which was also a record in the Company's history. The net income available for the common stock anrounted to 96;03L T68.18, equal to $2.69 per share on the outstanding common stock as compared to $2. 73pershare in1'939 and'i $2.21, per share in 1948. This slight decrease inn net income available for the common stock w,asdueentireh- t'othe recently inrrPaserl_FP 1Pral Tax ratPS F.crPnt for thP,_P; nP\t' AnJ increa?ad ;, tayPC tha net.

The Company's 5% Gold Bonds in the face amount of $6,195,460 mature on August 1, 1!961. In addition., the Company had notes payable to the banks in the amount of $18; 00.000 on December 31, 1950; which amount had increased to$23.700.000 on Februarv 15, 19'a11. While it is anticipated that! these notes will have been~ substantially reduced by August 1, 1951, the Man- agement of your Company feels that additional financing is required to pro- vide for payment of the 5% Gold Bonds, the liquidation of bank loans, and to provide the working~capital necessary to finance your Company's expanding business. ~ Our industry, is nowfacedw as you know; with a new and substantial in~ crease in Federal excise taxes. imposed to aid in our present crisis. Plus this, many of the states are seeking more revenue from t'obacco products. For a better understanding of the Federall and State taxation as it applies to our industry, a veryinterestinn article appears on the inside back cover of! this report. You will be interested in knowing every possible protection is bein- given our valuable records. NIicroCilmingisbeingdone daily. Films are storeollman.miles,fromNew York; while prints are sent to another equally secure Iocahon. We are asking vou to approve the transfer of our Annual 3leetin= from JersevCityr to New York Citv.It is the feeling of many that such a move will result in almuch greaterattendancer Much like a good old-fashioned Thanks- giving, dinner, ai great deal ofl tinreis consumed in preparation and f'or that~ reason we would be delighted to have the Lorillard fasnilh- hozne t'~oobserve and comment on our efforts. The suggested move must be sanctioned by two, thirds of the outstanding voting stock. Therefore. it is important to indicate vourapproval by returnon=Nourprnx}-, so marked. You nrar be oneof' those persons who. %%lien receiving an annuali report and proxy statement, f'eelJ; your holdings too small to effeetivelv assist or protestL and thereb%- relegates your vote to the waste-basket. If so; consider 3

Federoll Slate. ondlocolTa.es 49.13 C Cosl of leof Imbne<o..napplnq. und. ah',er ~ maleriul9nndsemices;bouphllrumorhenl~ \~ Weges ond sal6riesvp lo $5000. (diredly concerned ..ilh prndudion) ' $aldrier af $5000nnd over (manegeridl lond oll eRicer.)', Amount sel nsvde For. mechines.and . planta.veoring oul (i. e. depneciatien)i Amou-pnid ta Iheownert of 1he business (di:idendd to stockhelders) . ~ 37,47C u ` u u) ~ ~ uJ Reseined'in lhe businese ~FOC \ 077U fulunaneedlandimprovemems. " 42~ 01.22E 01.13C that approximateUy i2~Jo of, Lorillard's stockholders own one hundEedl shares or less;, 10``Ic; own between one hundre& and five hundred shares; while only 1 jc holdl ini excess of five hundl-edl shares. The balance is in the hands of brokers and institutions. We feel this represents a very healthy corporate picture. It means men an& women in alll walks of life arc investing a; part ofi their savings with us; we are very conscious of the irnplication of this stewardship. Each year we attempt to point out to our stockholders the importance each share of stock can play in the generat corporate picture when properly rep- resented at our annual meeting. It, is interesting to note the numtier of' n-ien and' women who appear each year and are heard! by Management. In many cases they are owners of but a few shares. yet' they make their holdings, how- ever small, express their views. 1`our shares are important enough to speak for you even though you are present~ only by proxy. The active participants referred to: do their work sincerely and do it in many cases with the aid of fewer shares possibly than you own If this makes for a better understanding of Management and widens the scope of enli=htenment', we at Lorillard are delighted and invite you to j oin us in our desire to bring about stronger Stockholder-Management relationship than is now enjoyed. If you~ agree, maywe greet you either in person or by proxy on April 3r~d. In the light of disturbed world condStions, predicting business tr~ends is hazard'ous. We expect our brand progress to continue and Government ship- ment's to many parts of the world to increase. We are prepared to meet the situation and to cooperate tothe fullest in our country's endeavor to bring about world peace. In view ofi the many demandsplaced on business, fore- casting earnings,in 11951 cannot be done with any degree of accuracy. Respectfully submitted, President~

1950 SALES ACCOMPLISHNiENTS NIT sales of Old Gold Cigarettes for 1950 continued to show a substan- U tially greater increase than the average for the industry. Again this year, a new impressive high was recorded for your Company's leading, volume brand. We feel confident that this stpady growth of Old Gold shouldl continue in response to our consistent and accelerated promotion program. In the king-size cigarette fie1d; a classification of growing importance, your Company's relat'iveNy new Embassy brand is progxessing, soundly in high.spot national distribution. Though still small volume-wise, Embassy sales for the last quarter of 1950 increased 79% over the same perio& of 1949. Again„ in 1950, exports were hindered by lack of dollars in many foreign countries, andl virtually alll ofl your Company's cigarette: volume was confined to the domestic market. While industry sales of smoking t'obacco and loose-leaf chewing tobacco continued slightly downward, your Company's important brands held theii own, maintainang, about the same volUme recorded for 1949: Tax withdrawal figures indicate an industry decrease for cigars of our classification. However, our total cigar sales showed a slight increase during 1950: Our new centralized operation of the Cigar Division began~ to: show desiredl results the last half of 1950i MuriellCigars were markedly improved with modern packaging designs and, in the Longfellow, an& Perfecto sizes, with Havana fire-curedl wrappers. These improvements are showing promising results: Our economyy brand, Headline, was increased to60 late in the year, wit~L demand far ahead of production. 5

THE LEAF BUYING' SITUATION 0 ux Leaf Department is charged wit6 two vital responsibilities. First, to determine ac¢uratelythe Company~'s over-all requi'o•enientsoftobacco leaf of all necessaryty,pes.Second, t'vbuy, process andl store for proper aging alli leaf tobacco for at lt ast a two-year manufacturing requirement. This past year, dueprimarily tcthe continuing and substantial increase in Old Goldi sales, it has been necessary.forour Leaf Department to: purchase areater quantities than in previous years of both flue-cured and burley tobaccos. By so doing, our leaf tobacco inventory tod'ayis greater t'han a year ago, and, based oni anticipated increases in business, is considered' adequate for our next two years' requirement. The prices paid for flue-cured tobaccos purchased in 1950 were at an all- time high. This was due to two reasons. The Government decreased the acre- age: and raised the support prices to new record heiQhts. Also the strong demand for cigarette tobaccos, on the part of the industry, further stimulated prices for the 1950! cr.op. As to future prices, it! is conceded that the Gov- ernment will increase the acreage of flue-cured andl burley tobaccos to be plantedl for the D951 crop.. We arenottbo optimistic as to the possibility of this Governniental action resultin~ini lower prices. N1'e believethe most we can expect is that prices for the 1951 crop~ will ao nohigher than at present. TuLar-u n-tiun I I

DEVELOPMENTS IN iMANI1F:}iCTURIN'G F 'rlir last teivyears; the avcra`e iirduStrN cost wfl flue-cured bright tobacco (whichaccounts for 50`,,' of thc u~arcltcmanuflacturin - cosU) has in- creased 333;c.. CiaareUepricesinu this period have increased only2'0'/~. This fact dranratically denionstrates the vital ahallpngeto the manufacturing department of y ourCompany - thclt of maintaining and improving, qualit}. yet constantly finding new practical means of effectina further manufacturing efficiencies and economies. Your Management is happy to report further pro~ress in both quality and savings for 1950. Modernization of your Company's ei,arette factories is near- ing completion. And new machines, lialanced operation and increased efficiencry have made it possible adequatelyto absorb our increased production volume. Ini Louisville, Ky., a modern building now under construction should be completed during the summer of'! 1951. Your Companyhaspurchased 13' acress of property adjacent to the Louisville plant. Thisproperty; including t~+-o: needed warehouses, can be utilized for additional construction when advisable. At theeigar factoryinRichmond. Va~, our newcentralizedw operation and continuing plant irnprovement are efTccti~nl- substantial production economies. Complntemodernization plans are now being executed. Your Management anticipatesthat„ byfall of1951, practicallv all work, including installation of additional new machiires; airconditibned storage rooms and other modern improvements, should be completed. Plant improvements alreadyineff'ecu aree achievina tansible savings and! providing new higher standardsof quality,. 7

RESEARCH ACTIVITIES D URING the:recorded year, Harris B. Parmele,, Ph.D., was elected' a Director of our Company. Joining P Lorillard Company two decades ago, Dr. Parmele organized what turned out to be the first company-sponsored tobacco Research Laboratory in~this industry. Today, with latest scientific equipments graduate chemists and laboratory technicians analyze everything that' goes into and around Lorillard products. Quality, control, governing manufavturing, is directed by the Research Depart- ment. Pure research, dealing with the future, is a continuous project. Most of the laboratory work is concentrated on the cigarette, because this is the largest single tobacco item sold today. But cigars, smoking tobacco andl chewingt'obaccocome in for their share ofanaly=sis, all aimed at making them conform; to pre-est'ablishe& high quality standards. In the Research Laboratory, also, cellophane and alumin= foil; whose, uses in the tobacco field were pioneered by LorillardL are subject'ed to strin- gent sirength and puritytests. The package, even the eolorand inks ar~eanalyzedl In the factories, the Research specialists constantly test! the air and moisture content of the huge rooms. Even the paint usedl on factory walls, machines and floors is tested . . . the furnace coals analyzed lest they give off emanations which would alter the tobacco product characteristics. InAe maze:of microscopes, test tubes and special apparatus, the tobacco leaf' goes throughi a tortuous mill which yields its precise secrets, "secrets" whichi enable the experts to pair off' and blend tobaccos, in terms of their scientific elements, to make a constantly improved andl stable quality product. 8