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big-name OLD GOLD show starring Frank Morgan, Don Ameche and Frances Langford. ' The fifty-two-week network radio advertising, was buttressed during, the spring and fall by two newspaper campaigns which gave your Company tremendous advertising, ii-npacr in key markets from coast to coast. To furnish add'itional' selling drive in markets and whole regions where demand for our products justified extra expenditure, play-by-play broadcasts of baseball, football', basketball, etc., were employed, as well as newscasts and sportscasts by popular local announcers. These gave us almost year-round advertising of a par- ticularly effective kind' to that huge, audience of smokers who are also sports fans. A TEN YEAR COMPARISON OF INVENTORY WITH SALES IAILLIDNS' OF DOLLARS 125 100 75 50 25 ' OROSS SALES I TOTAL INVFNTORIES. 1938 1939 1940 1941 1942 1943 1944 1943 1946 9 1947

~~f; T9SSt~ 0 , r CIGAR ,. 0 HUF„a.'~...'° Y_J 47 aa 6~t 1 fi 1 V~ner~t~, ; 29.. . ~ ® ® w. h t n ft ELMAR 0 0 0

Thus,,your Company continued its consumer approach to smok- ers along lines we had already found to be sound and profitable. s Lea f Costs and InventorieS-While the prices for the flue cured (bright) tobacco crop were down somewhat as a whole, the prices for the grades which we purchased most heavily to round out our stock were practically at the high level of the previous crop year. Burley tobaccos of the current', crop are alil unusually fine smoking quality and the prices were the higheso they had been in twenty years. As a result of these factors the cost of the tobaccos going, into our manufactured products is at its highest leveL Future prices will in a large measure depend on~ the extent to which the Gov- ernment continues its price supporting programL While our inventory of leaf roobacco has decreased during the last two years, it is nevertheless ample for our requirements. The chart on page 9 shows the fai'rly stable relationship be- tween sales and inventory for the last ten years. Employee and Management Relations-During the year 1947 our relations with our employees and the unions represent- ing them have in the main been excellent and! no labor troubles of a serious nature have been experienced. During the latter part of the year the number of people available for employment gradually increased and there was also improvement in the type of applicants seeking employment. This should result in improving the effi- ciency in our plants. At the present time the Company has about six thousand three hundred employees. Since 11940 total wages 12

w I , All o f our~ cigars are manu f ac- tured~ by~ machine~~ in our~ up'1 to- date plant at Richmond, Va. and salaries paid to all employees of the Company and its sub- sidiaries have increased by about 70 per cent. The breakdown of the Company sales dollar for the year 1947 shows that out of each dollar received by the Company 8.9 cents were paid in wages and salaries up to $5,000.00 (those directly concerned with produc- tion) and 9; li0thsof one cent in salaries of $5,000.00 and over (managerial and all ofpicers).' The chief problem in connection with our labor relations at, the present time is brought about by the high cost of living. We feel' confident, however, that with the cooperation of the employees andl the Unions representing them, this problem will be solved in ai manner that, under the circumstances, will be fair and just, to the employees and at the same time will protect the business of the Company. The Owners of the Cornpany-ln, these times, when there is a tendency to criticize "big business," it is interesting to find out 13.

Frank Morgan, Don Aine- che, Frances Lang f ord-.uar.c o fthe po pular Old Gold nation-wide radio progrant. just who are the owners of our Company. The following tabula- tion gives an illurminating breakdown of this ownership: Number of Stockholders ................ Over 26,000 Women .................................. 12,000 Men ..................................... 10,000 Fiduciaries, institutions: and brokers ...... Over 4,000 Number ofSharesStock'holdersStock' Held1Mshares or less about 72% about 30c 101-499 shares about 11 % about 24~'"/c 500 shares or more about 1% about 14% The remaining 16,',~~ of~ stockholders are fiduciaries. institutions and brokers who holdlabout 3217c of the stock. This group pre- sumabl~ inclitdes a number of small holdings. 14 V

. And so here we find that' the owners of' our Company are ' just good, thrifty Americans who have investedi their savings in small amounts in our Company. There are over four stockholders for each~ employee-which means that for every job createdi by the Company over four people have invested their savings to make this job possible. Proxies-The Laws of New Jersey require that a majority in inter- est of the stockholders rnust be present either in! person or by proxy in order that the Annual Stockholders Meeting mayy be held. The foregoing tabulation of the stock ownership of the Company should convince alt stockholders-no matter how small their hold- ings may be-that they should vote and return their proxies in order to have as full an expression as possible of the opinion of the stockholders. Practically everybody votes in major elections, but only a relatively few vote in so-called off-year local elections-eithe.r feeling the issues are unimportant or that their vote will not count for much. Stockholders of corporations often have the same feel, ing with regard to voting on~ corporate affai'rs. In the case of our Company, however, your management is always eager to have an expression of your opinion through the medium of your signed proxy. 'By your purchase and continuance in holding, Shares of' P. Lorilllard Company you have demonstrated a: belief! in the invest- ment possibilities of this Company. By fill'ing-in and returning your proxy promptly you enable your Board of Directors to con- 1S 46;__~

tinue conducting your Company's affairs in a manner whachi reflects the views of the stockholders. Outlook for I948-I believe this 1947, Report indicates that in spite of continued high costs of leaf' tobacco and the probabilityy that most of our manufacturing expenses wilI' remain at present inflatedi levels throughout the year, the outlook for continued consumer acceptance of our products and for good earnings ap- pears to be reasonably assured. Respectfully submitted, President. :+. 16

P. LORILLARD COMPANY and SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31,, 1947 With Comparative Figures f or Preceding Year 1 1947 1946 Gross Sales, less Discounts, Returns and Allowances. .$'127,919;654.86 w'l2-},047,263:28' Cost ofGood; Sold, Selling, General and AdMinistrative Expenses ........................ .718;031,939.08 117,277,806.07 Operat6ng Ihlcorne .................................. .. $ 9;887,715.78' $ 6,769~457?i', Renegotiation refund, net ............................ ,. .-48;450.00 Other lnconme ..................................... 169,835,8340;169.711 $ 10.(D57,551.61 $ 6,858!076.98 Income Deductions :. Interest on funded debt ....................... .. . . . $ 878;572:50 S 888,172.50 Amortization of debt premium and expense....... . . 13;54P?9 13;77~5.94 Other interest .................................. .. 218;806.72 294,61'S.46 $ 1i,110j926.51~ $~ 1,196,563.90 ~~ Balance before Provision for Taxes on Ihicome........ $ 8,946625.10 S 5,6611513.08'- Pcovision for Taxes on Income: Federal income tAxes......., ..................... $ 3,270,000.00 $ 2,076,00000 State income taxes ............................... 160,700.00, 73,300:00 $3;,430.700.00 $ 2,1'49;300:00Net Income ....................................... $ 5;515,925.10 $ 3,512;213.08 Depreciation p'ro-,~ided-1947 $407;935.30 1946 362,973.58 CONSOLIDATED STATEMENT OF EARNED SURPLUS V L N FOR THE YEAR ENDED DECEMBER 311, 1947 ~ With Comparative Figures for Preceding Year ~ i t c 19'i, 1946 i W Balance at beginning ofyear......................... Add: $ 20,220;950.78 $~ 19;?36,31'0:17 ? Net Income per Consolidated Statement ofIneome.... Profit on, sales of property and equipment Gbased on 5,515,925.10 3;512 13:08 c: book values as adjusted December 31,,19321 ....... - 404,971.49 $ 25;736,875.88 $ 23',1'i53,544.74 Deduct : Dividends on Pteferred Stock ......................... $ 686,000.00 $ 686;000:00 Dividends on Common Stock ......................... 3;369,895.53 2,246593.96 $ 4;0-55,895.53 $ 2,932,593.96 Balance at, end of year .............................. S 21,680,980:35 $ 20,220;950.78 [17] ce!m: :ar _~-F

G I P. LORILLARD COMPANY and SUBSIDIARY COMPANIES CUNSULIDA'I'ED BALANCE SHEET-DECEMBER 31, 1947 l~'ith Contparative Fignrer /or 193< ASSETS CURRGN'1ASSF'FS 194, 194o Clasli iu banks nud un h:md ............. ........... AccuunU receivable-trade (Iess reserves 1947 . $587,9110.24; 1946$544,124.86)...... ............. . OIherr accuunts receivable ....................... Invcvturics, at cost: Leaf tobacco .............. ......... ...... RI:muE.ctured .ctock ............................ . Hcvcuuc stamps ............................... Mateu,ds and supphc..................... ...... . Spe'4ta1 dcpusits-coutra ........... :' .............. "futalrurrcut assct..... ................... I NO'GIiS-IiECEIVAULE-duescrially tn 194')".", ,.__ FROPERTY, PLANT ANI) EQUIPMENL, a, ad- justed Uerember 31, 1932 bv .mtli6tization iif stuck- ht,lders, plu5 subsequent a<(ditiuns at cost, less [etire- ments ........................................... Lrrx: Rescrves for depreciatiun.......... ......... I3RANUS, TRADE MARKS ANI) GOODWILL..,. DEFERRE[) CHARGES , Prepaid iusuranc.e, a}lverti.ing aud taxes............ Debt premium aud expense ........................ 1.liscellaneous .............................. ..... $ 6,613,300.53 S _7,7_5_2,89523f_S .v §,29U,S.iq.6S 5,406,128.08 13R.3255(i .36N,089_13 .: 6J,311'),')06.0') 68,I0,32.3..i2 . ~ 5.214,805.91 5,873,961.SR A5-i,372.59 I,ll'q,q72.61 3,858,16?li4 2,7a6.55.S.3S ~. ' 1i54.574.R3 .36 212.877 $ fl5!).S3,9R~t.;t.t $ 91,571,7111.31 R IIS,IIWI(11) $ 187,51100) $ I5._")1,(,u8?`) ~$ I a.5N l•737 oU __ (6,13K.457o1 0.l?5,a17T) $ 9,15.5,151)68 $ 8,45q,31').8l $ IIIU $ LINI i- $ .380,3a9"U7 $ 257,751At, 79,424A9 87,371.78 . 149 150_5R _ 175,063 _R6 $ G0$924.14 $ 520,197.60 $ 45,421,060.65 $1 U(1,73H,7119, 72 LIABILITILS CI1R11FN7' LIAIi1L1"IIIiS St,tt, Ir,t)~ablc- Irnil: l,,;n .......................... t\ccuwit I.tyablc ....................... ........ I tx drJuctious frum p.tyrolls.... ............... 1 onity 1 r t 31,4, Ucl(cntures (duc wrtluu one ;ear) .Arrruals : ... noll, ...................................... '1'axc; .. ...... ......... ................. Inlcresl ...................... ......... ....... A~.Ircnti,iu•~ .. .................................. . _ . .. . ............. ... . .......... I)Ividtud ialu sl fuoclctl tlcltt m1d iutcrest-funds .... . on dep, slt, iuinrn .......................... 'I'ul:d cw~rcnt liabilitics ................... FLJNUEU l)1513"F 5';L linkl 1S„utls, m;ilm-iul; r\up,u>t 1, 145L....... . 'IAtcuty Sear .Y"', Ihbcnhire>. d uc Ilctoh<" r 1, 1963 ltlie-in~lcuturc reqnirvs tlic rclircwenl uf $32l),O(N) --- ip 1948 and $(rI111,01111 anuu;Jly 1949 tn Irl?t2) f=APGGAI S10(.K ANI) SURPLUS Caliltal tit"ck" 717,, (*uuud:pive Prefcrred Stock par value $IlN) per 5harc: -Authorizcd')'1,576 ~hares; issuerl 98,000 shares C_ummo Stork ptu~ value$II) per sltare: ,Multorized SfN)(1,111N1 shares INl7 l'I-lh $ 9Auu.uuu.uu ft23,321.37 $ Ih.nuu.nnu.oo 1•r,qH?36.24 143,4411.00 110.19t1.1(1 320,000.00 3RI,IMXL0U 1 n 5,i .{7.18 I')3.9_'S_ I I, 4,366.4453) _'!)Sn,UOO.IH .69,471.87 271,87118 7 110,142.55 1(8),788.93 186.R4K?9 102,110 ?(I v54.574R3 212,1477.30 $ 1}iA40,78L.39 $ 22,0')R.461103 $ 4,195.45U.IIU $ 6,1"S,45U.IM/ I 1 R,4(1fl,U(10.IN1 18,7_'ll,lll ll Ulll S ?:1,595,45U.I10 $ 24,915,a5Q.wl $ 9,RIln,()LNLlIU $ 9,SLHIINNlAO LI Issucl2,24(i,6Sl.ft9 shares ................... 22,d(d.81R.')() 22,4o6,818Sx) 1'aid-iu Surplus ...... .................... _...... 1,237,030.01 1,237,f)3t3.01 Larn,tl tiurplu.c, a_s per statemenl ($12,541,469.4R nnt av(tilablc fuic ctsli dii•idcuds on commun stock zder I.iovlsions of lwcuty-Year 3% Debenture lt•nlu t ) ................... ...... ........ 21,(iKll,')RI1..35 ~ ,I/ „(1.0.511.7,K ~ $ 55,164,829.26 $ 5.3,724,799.69 $ 95,g21,O6Q65 $I0U,73$,7LS9.72 [19j • I Lvf:I9SSg

Report of INDEPENDENT PUBLIC ACCOUNTANTS To the~Board, o f' Directors~and'~St~ock'holderr~ o f~ P: Lorillard Company: We have examined the consolidated balance sheet of P. Lorillard Company and its subsidiary companies as of December 31, 1947, and the consolidated statements of income and earned surplus for the year then ended, have reviewed the systems of inrernalicontrol and the accounting procedures of the companies and, without making a detailed audit of the transa ctions, have examined, or tested accounting records of the companies andi other supporting evidernce; by methods and to the extent we deemed appropriate. Our examination was made ini accordancewith, generally accepted auditing standards applicable in the circumstances and' inchaded' all procedures which we considered, necessary. In our opinion, the accompanying consolidated' balance sheet and related consolidated statements of income and earned' stupluss present fairly the position of P. Lorillard Company and its sub- sidiary companies at December 311, 1947, and the results of their operations for~ the year, in conformity with generally accepted accounting principles applied! on a basis consistent with that of the preceding, year. DELOITTE, PllENDER; GRIFFITHS & CO.. 111 Btoadkvay; New York, N'. Y. February 16, 1948