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Annual Report • 1948

ANNUAL REPORT FOR THE YEAR ENDING DECEMBER 31, 1948' AMERICA'S OLDEST TOBACCO MERCHANTS officers HERBERT A. KENT - - GEORGE D. WHITEFIELD - TODD WOOL - - - - WILLIAM J~ HALLEY - - FRANK HOPEWELL - - IRVIN H. PEAK * - - - * Elected January 19, 1949. d1 recto3"s CLAUDE W. BERKLEY EDGAR S. BOWLING' JAMES A. GLASCOCK LEWIS GRUBER WILLIAM J. HALLEY DONALD A. HENDERSON 0 ESTABLISHED 11760 - - - - - President - - Executive Vice President Vice President and Secretary Vice President and Treasurer - - - - Vice President - - - - Vice President FRANK HOPEWELL HERBERT A. KENT IRVIN H., PEAK F. GLADDEN SEARLE HAROLD F. TEMPLE TODD WOOL GEORGE D. WHITEFIELD GENERAL COUNSEL-PERKINS, DANIELS & PERKINS' TRANSFER AGENT-THE NEW Y ORK TRUST CO., NEW YORK, N. Y. REGISTRAR-THE NATIONAL CITY BANK, NEW YORK, N. Y. Executive Office-119 West 40th Street, New York 18; N. Y. Corporate O/jrce-15 Exchange Place,, Jersey Cit,r, N. J. 1

To the Stockholder.r: . . Earnings THE MANAGEhtENT' is pleased to report that the Company was able, during 1948; further to increase the gratifying level of' earnings reachedl in 1947. Costs continued to rise, but were offset by an increase in the price of cigarettes, which went into effect in August and'i began to be reflected in earnings during the last five months. Sales for the year totaled $140,279;236.56;, the highest in the Company history. The net income of the Company available for common stock amounted to $4,958,939:23, equal to $2.21 per share on the common stock outstanding. These earnings compare with $2.15 per share in 11947 and $1.26 per share in~ 1946. . Dividends During 1948' the Company continued its policy of paying four interim dividends of 250 each on its common stock ands in addition, paid a year-end extra dividend of 50¢ a share, as it had in 1947. We expect to continue this dividend policy but, of course, the amount of any extra dividend will depend'upon the result of each year's operation. 3

Sales . . . . Selling and brand building activities for 1948 can be covered, for a change, without reciting the many retarding obstacles ever present during the adjustment period following the war. Our position today relative to merchandise is clean, and business has returned to a highiy competitive operation such as normal times always produce. It is, of course, a genuine pleasure to tell you OLD GOLD Cigarettes enjoyed a very substantial year, showing a consistent increase throughr out the twelve months in response-first, to superb quality-next, to our sound advertising policy which brightened the flame of prestige as it acquired new smokers and new momentum. Our enlarged program for 1949 will follow to a great extent the successful! pattern~ of the year covered by this report. Naturally, pro- motional costs will continue to be high, but we confidently feel new business will more than justify our investment in the future. Under the caption "Sales Promotion" you will find an outline of advertising implements to be employe& in making your Company's leading prod- ucts a greater competitive factor during the coming year. . DISTRIBUTION OF THE SALES DOLLAR FederalJ, State, amd locolTa.es. 47.97~ Cost.of Ieef tobacco, wrnpping, and othes meterlali and services (bought from othen) . \ Wages and safaries up to $5000 ~ (directly concerned with production) Salories of $5000 and over (manogeriol .and:oll'.offiders) Amount.set aside for machimes and plonM wearing out (i. e. depreciation). Amount p,aid'to the owners of the business (dividends to stockholders) Retained irn the buslness forr future needs ond'improvemenrs O8.SZQ ~ ~ - 0- 01060 M 4; 8Z 00 ¢ , . 00.3G¢I 9 s. ~ ~ ~ 0 0

In our last report we informed y= of our new king-size EMBASSY Cigarette. After a long period of pre-testing we are, as perhaps yow know, opening this brand to nation-wide distribution. Its availability; at least in the better stores, should be f'airly welli established by the time this report reaches you. King-size cigarettes last year showed a very substantial growth. We believe this classification will' continue to grow in importance and are determined to have a part in the expanding cigarette market represented by the long size. EMBASSY is a fine quality product, 5

packaged most attractively. Its eye-appeal easily translates into taste- appeal for those desiring a really mild cigarette. For the first time in several years our smoking tobaccos as a whole arrested their decline and produced a small increase. Principal brands are BRIGGS, UNION LEADER, FRIENDS and INDIA HOUSE. Loose-leaf chewing tobacco, while holding, our high percentage of the total business, produced a volume almost as great as in the pre- vious year. In this classification our brands are BEECH-NUT,, BAG- PIPE and' HAVANA BLOSSOM. The cigar business in general did not fare too well in 1948, ours being no exception: In our last report we informed youi that MURIEL SENATOR and HEADLINE' Cigars were still in short supply. Early this year and almost overnight this condition changed from one of scarcity to one of plenty. Study of the situation convinced us of the necessity of streamlining the shapes and sizes to meet the consumer economy trendl These changes are now being made, and are in some cases completedl Our distributors throughout the country are most enthusiastic in supporting the new program. With VAN BIBBER and ROYAL BENGAL we returned to the little cigar field, BETWEEN THE ACTS having been the sole sur- viving member of this once large group. Naturally, 1948 sales had practically no competing,figures;, therefore, sales represented an increase. Sales Promotion . . . . OLD GOLD CIGARETTES. During the entire year we continued in our advertising to recommend OLD GOLD Cigarettes to the con- sumer on the basis of interesting variations in the story of enjoying these fine cigarettes for the sheer smoking pleasure they provide. This logicali sales approach is summarized in the slbgan, "If you, want a treat instead of a treatment. ...

• "STOP THE MUSIC!" exclaims Master of Ceremonies Bert Parks during broadcast of Old Gold's top portion of this outstanding radio program. It has one of the highest listenerships on the air. December rounded out twenty-eight months of continuous and judicious use of this theme; and during the year our consistency paid off in the gratifying and steady increases in OLD GOLD sales men- tioned earlier in this report. Magazines. After an absence of severali years, we returnedl to the use of national magazines. A strikingly effective and concentrated campaign of full~color pages appeared throughout the year in every other issue of Life and Look magazines. A few typical, examples of our effective use of these media are reproduced in greatly reduced size in the center spread of this report. Newspapers and' Newspaper Supplements. In, the larger centers of population and in strategic OLD GOLD markets, an aggressive cam- paign, in daily newspapers was waged during the spring and! fall. Beginning in March, full-page advertisements appeared steadily and at freqpent intervals in leading groups of Sunday Supplements. Radio. In May your management foresaw an opportunity for buy- ing into the now sensational STOP THE MUSIC program; broadcast Sunday evenings over the American~ Broadcasting Company Network. 7

By the close of the year this franchise represented one of the most important "buys"' in radio advertising. Further to promote the brand via radio, we purchased advertising, rights to the nationally famous Originat Amateur Hour. This helpful and popular program we placed in a strategic Wednesday evening full-hour time spot on the American Broadcasting Company Network. By combining our purchases of time for both our shows on~ the same network important savings in radio time costs were effected' for your Company.. Television. During 1948 ' your management became convinced that this new medium had' progressed commercially to a point where a moderate investment in its use was warranted. Therefore, we supple- mented our radio play-by-play broadcasts of baseball in Brooklyn and Chicago with telecasts of many of these same games. During the last three months of the year the Original Amateur Hour has been telecast on Sunday evenings from seven, until! eight o'clock Eastern Time over the Dumont Television Network. It has • "ORIGIIVAL AMA- TEUR HOUR," with Ted Mack as master of ceremonies, wins many listeners and mrcc6 good will f or Old Gold ... over tlze ABC radio network.

OLD GOLD'S TELEVISIO N SHOW/ features the "Orig- inal Amateur Hour," and' the dancing cigarette pack'- age. Both are extremely pop'- ular with the telerieu•ers: become one of the most popular television shows and is now telecast in seventeen key cities. BRIGGS AND INDIA HOUSE SMOKING TOBACCO. Small unlti space' but continuous and effective national advertising campaigns were con: ducted for these brands in, the three largest weekly magazines. Advertising of OLD GOLD Cigarettes and! our smoking tobacco brands is placed by Lennenl& Mitchell, Inc. EMBASSY KING-SIZE CIGARETTES. Intensive advertising, and sales promotion of varied types were painstakingly pre-tested and then 9

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A TEN YEAR COMPARISON OF INVENTORY WITH SALES MILLIONS OF DOLLARS 125 100 75 - 50 - 25 - . GROSS SALES ' TOTAL INVENTORIES 1939 1940 1941 1942 rl, 1943 1944 1945 1946 1947 1948 applied in collaboration with our EMBASSY advertising agency; Geyer, Newell & Ganger, Inc. Resulting sales volumes in markets were most carefully watched. Our decision to introduce EMBASSY Cigarettes on a nationaU basis of which you were informed on page 5 was based on results of these operations in local markets. In the foreign language press in this country, advertising of both, OLD GOLD and EMBASSY Cigarettes is handled by Louis Krams Inc. Leaf Costs and Inventories . . . . Our purchases of domestic cigarette tobaccos (Burley and' Flue- cured) of! the past crop year were at higher prices due to the fact that the Government decreased the acreage and raised the support I 12

i pric: s. Because of these planned': factors the cost of tobacco going into our man.ufactured products continues at very high levels, and' there is: no indication of lower prices in the foreseeable future. In spite of increased purchases by us during the past crop year our inventory of leaf tobacco remains about the same. In our opinion it is adequate for our requirements after allowing for a substantial vol- ume increase in our sales. . . Employee and Management Relations We enjoyed~ splendid' relations with our employees and! with the unions with whom we dealt during the year 1948. Every endeavor is being made to maintain harmonious and cooperative labor relations. At the present time the Company has about 6,000 employees. Since 1940 ~ total wages and salaries paid to all empl'oyees of the Company and~ its subsidiary have increased': by about 77.8 per cent. The break- down of the Company sales dbllar for the year 1948' shows that out of each dollar received by the Company 8.50 were paid in wages an& salaries up to $5,000 (those directly concerned wi& production ) and' 8/10ths of one cent in salaries of $5,000 and' over (managerial and alI officers ) . The high cost of living still remains the chief concern~ in connection with our liibor problems. In recent months there has been some decline in the cost of living, and a continuation of this decline should tend to alleviate this problem. We feel confident that we will continue to receive the cooperation of our employees and of the unions representing them in solving this and other problems. . . . . Incentive Compensation At the Stockholders Meeting held! on April 6, 11948 the stockholders by a very large majority amended Article XII of the By-1aws, entitled "Incentive Compensation for Officers and Key Personnel." Briefly, the l

W15CONSIN ro ituNOfs 0 Sp.mg(iell' 5' /NpIANA~ ONIp I I I I I 11 1 1 Cdnmb,.5 1 I r O: I O Ind;nm,pul;s ! F.mnkfe Louis~l6la lb.fnyfom ~ PENNSYLVANIA 1 ~ ~,pnC,O51M W.VA. i T{'/ .~ VIROrN1A Chorlesfan - KENTUCM~ punvl le_ _ _ _ _ _ _ MANE ~ ~ 'I A69"s1o. Vt r O NEW~YORN~ O'~ 'N:H.! ~ onf~pd~er~ rr ~ Albemy~. 0 - A MASS. L yw,-T - L N.u 0, p~Bcslon LORILLARD'S MANUFACTURING NETWORK * Headquarters . Executive Offices A Processing ..,. Manufacturing Plants • Leaf Handling Facilities... curing, storing, etc. plan provides that 10 per cent of net income above $1.20 per share on each share of Common Stock outstanding should be paid as incentive compensation to officers and key personnel. ~ The plam adopted by the stockholders was by its terms limited to officers and key personnel, as it was felt that such a partnership between stockholders and management would be most beneficial to ~ the stock- holders. Those selected to receive incentive compensation are, in our opinion, those whose initiative and leadership can best promote the progress of' the Company. In making the selpction, responsibility, merit and length of service were all given considerationl On the above basis, incentive compensation for 1948 amounting to $251,435.66 was distributed. M.dd4eb.m Richro6nd 14 1

. Proxies. Whv do we urze ou to return vour 0 roxies romptl ~ Frankl f we like to have the feeling that all shareholders, members of our corporate family, are sufficiently interested in Company affairs to want us to have a substantial: proxy return. It offers you a meeting ground for expression, one where constructive criticism is most welcome. Whether we have grave problems affecting, your Company's future or merely the annual election of DD irectors, it makes for a better meeting. It also serves as a vote of confidence in~Management. Regardless of how small you consider your holdings, to us and to you they are important. Remember always that ours is a free economy, giving youa privilege not enjoyed by all peoples of the world: The right to make free decisions is reserved exclusively to free people. Let us alli do everything possible to preserve this freedomL A stamped and addressed envelope is enclosed with the proxy state- ment for your convenience. Outlook for 1949 k Notwithstanding the general business uncertainties associated with our rapidly changing times and continued high raw material and! manufacturing costs, 11 feel we have built and are maintaining an~ effective momentum~ behind! a program designed' to improve our posi- tion with consumers and employees. From this work come encourage- ment an& reasonable assurance of another good year. Respectfully submitted; President 15

Jersey City, N. J., February 28, 1949 To the Stockholders o f P. Lorillard Company: Statements showing the results of' the operations of your 'Company and its subsidiary for 1948, the financial position at December 31, 1948, and' comparative figures for the pre- ceding year, are set forth on the following pages. Respectfully submitted, W. J. HALLEY, Treasurer I

P. LORILLARD COMPANY and SUBSIDIARY COMPANY CONSOLIDATED STATEMENT OF INCOME AND EARNED SURPLUS FOR THE YEAR ENDED DECEMBER 31i, 1948 With Comparative Figures f or the Preceding Year f 1948' 1947 Sales, less Discounts, Returns and Allowances........ $140,279,236,56 $127,919,654.86 Cost of Goods Soldj Selling, Generali and Administrative Expenses .................. 130,276,521.18 1118;031,939.08 Operating Income ................................. .. $ 10;002,715.38' $ 9,887,715.78 Other Income ................................ 165,474.95 169,835.83 $ 10;168,190!33 $' 10,057;$51.61 Interest on Funded Debt ................,...... $ 868,972:50 $ 878,572.50 Amortization of Debenture Expense ............ 13,318:64I 13;547:29 Other Interest ............................... I 142,059:96 218;806.72 $ 1,024,351.10 $ 1,110,926.51 Income before Federal and State Income Taxes ....... $ 9J43,839:23 $ 8,946,625.10 Provision for Federal Income Taxes ........... $ 3,353,000.W $ 3,270;000.00 Provision for State Dncome Taxes ............. 145,900;00 160;700.00 $ 3,498,900A0 $ 3,430;700:00 \et Income for year................................ . $ 5,644,939.23: $ 5,515;925.10 Earned Surplus at beginning of' year ................. 21,680,980135 20,220'950:78 $ 27,325,919~58' $ 25;736,875.88 . l Dividends on Preferred Stock-$7 per share.... $, 686,000~00 $: 686,000.00 Dividendsoni Common, Stock-$L50 per share:.. 3,369,898;97 3,369;$95:53 $ 4;055,898.97 $ 4,055;895.53' Earned Surplus at end of year ....................... , $ 23,270,020.61 $ 21y680;980:35 De¢recintion prozYided-1948 $501,946.45 1947 407,935.30 17

P. LORILLARD COMPAN~ ~ CONSOLIDATED BALANCE I With Comparative ASSETS CURRENT ASSETS: 1948' f, 1947 Cash in banks and on handi ......................... $ 5,632,438.89 $ 6,61i3,300:53 Accounts receivable-trade (less reserves 1948 $630,073:28; 1947 $587,900!24) ................... 6,300,8911.00 5,290,536.68 Other accounts and notes receivable ................ 146,935.33 263,325.56 Inventories, at cost : Leaf tobacco .................................. 64,269,906:99' 64,309,906.09 ',Manufacturedu stock and revenue stamps.......... 5,390,534.52 6,069,178.50 Materials and supplies .............,............. 2,877,831.66 2,858,162.64 { Special' deposits-contra .......................... 631,921.16 654,574.83 Total current assets ........................ $ 85,250,459.55 $ 86,058,984.83 PROPERTY, PLANT AND EQUIPMENT, as ad- justed December 31, 1932 by authorization of stock- holders, plus subsequent additions at cost, less retire- ments .......................................... 16,726,561.13 15,291,608.29 Less: Reserves,for depreciation .................... 6,217,154.74 6,138,457.61 Total property, plant and equipment......... $ 10)509,406.39 $ 9,153,150.68 BRANDS, TRADE MARKS AND GOODWILL..... $ 1.001 $ 1.00 DEFERRED CHARGES: Prepaid insurance, advertising an&taxes............ $ 473,362.32 $ 380,349.07 Unamortized~ debenture expense .................... 70,905:85 79,424.49 Miscellaneous .................................... 1i77,975:08 149,150.58 Total deferred charges ..................... $ 722,243125 $ 608,924.14 $ 96,482;110:19 $ 95,821,060.65 1i8

and SUBSIDIARY COMPANY SHEET - DECEMBER 31, 1948 Figures f or 1947 LIABILITIES CURRENT LIABILITIES: 1948' 1947 Irlotes payable -banks ............................ $ 8,000,000.00 $ 9,000,000m Accounts payable-trade ......................... 1,777;829.27 966;761.37 Twentq Year 3% Debentures (due withimone year) . 600,000.00 320;000:00 Accrued taxes ................................... , 3,877;103.60 4,366,445.30 Accrued payrolls ................................ 409,505.91 165;737:18 Accrued interest ................................. , 267,071.87 269,471.87 Other accrued liabilities ........................... 149,358:86 297,790.84 I Dividends, etc.-funds on deposit, contra........... 631,921.16 654,574.83 Total' current' liabilities .................... $ 15,712,790.67 $ 16,040,781.39 FUNDED DEBT: 5% Gold'Bonds, maturing August 1, 1951i..........,. $ 6,195,450;00 $ 6,195,450.00, Twenty Year 3% Debentures, due October 1, 1963 17,800,000;00 18,400,000.00, (the indenture requires the retirement of $600,000 annually 1949=62) Total funded debt ......................... $ 23,995,450.00 $ 24;595,450.0W CAPITAL STOCK AND SURPLUS: Capital Stock : 7% Cumulative Preferred Stock,,par value $100 per share: Authorized 99,576 shares ; issued 98;000 shares 9;800;000.00 9,800,000:00 Common Stock, par value $10 ~ per share : Authorized 5,000,000 shares Issued 2,246,681189 shares ................... 22;466,818.90 22,466;818:90 Paid-in Surplus ................................. 1,237,030.01 15237,030.01 Earned Surplus, as per statement .................. 23)270,020.61 21,68%980:35 (i$12,541,469:88'not available for cash dividends on common stock under provisions of debenture in- denture) Total capital stock and surplus ............. $ 56,773,869:52 $ 55,184,829.26 $ 96,482,1',10.19 $ 95,821,060.65 19

ACCOUNTANTS' REPORT To the Board o f' Directors and Stockholders o f P. Lorillard Company: We have examined'the consolidated balance sheet of P. Lorillard Company and its subsidiary company as of December 31, 1948, and the related consolidated statement of income and earned sur- plus for the year then ended; Our examination was made in accor- dance with generally accepted auditing standards and included such tests of! the accounting record§ and such other auditing procedures as we considered necessary in~ the circumstances. In our opinion, the accompanying consolidated balance sheet and consolidated statement of income and earned surplus present fairly the financial position of P. Lorillard Company and its sub- sidiary company at December 31, 1948,, 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. DELOITrE, PLENDER, GRIFFITHS & CO. Certi fied Public Accountants 111 Broadway, New York, N. Y. February 11, 1949 Printed in U. S. A.

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