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A sincere tribute "A smart friendly package" Forbes Magazine called Lorillard Annual Report for 1950, naming it tobacco industry's best. President Kent (right) and Executive Vice President Ganger (left) accept citation for report front publisher of Forbes. `jOUR MANAGEMENT wishes to express its sincere ap- npreciation of the friendly interest shareholders have show in the operations of P Lorillard Company. This concern has manifested itself by constantly increased attendance at Annual Stockholders' Meetings, free exchange of opinion at these meet- ings and prompt return of proxies by those who find it impos- sible to be present. We have been most gratified, also, by the salutary reaction to previous Annual Reports. Both our shareholders and the financial press have commented favorably on their complete- ness and clarity. Management will continue to give you, as clearly and concisely as possible, all of the information you want and require concerning the fiscal health of your Company. And, particularly for those new stockholders who join the ranks of our Company-owners each year, the Report will continue to detail Company operations, management, products, policies and principles. To each Lorillard stockholder, large or small, your Manage- ment wishes to express its appreciation of the confidence you have evidenced in it by investing in our Company. You may be sure your Management will do all in its power to make that in- vestment worthwhile, to prove suitable guardians of that trust. 89300834 President H. A. Kent (left) dis- cusses Company's fine sales rec- ord in past and outlook for future. Shareholder questions Executive Vice President R. M. Ganger re earnings, dividends and financial status. At last year's Annual Stockholders' Meeting, P. Lorillard Company Directors and Officers greeted the largest turnout in Company history. Tax situation evokes rueful smile from Vice PresidentHalleY (center) and stockholderx ....,.:,

P. Lorillard Company Annuai Report 1951 OFFICERS HERBERT A. KENT ROBERT M. GANGER TODD WOOL . . . WILLIAM J. HALLEY FRANK HOPEWELL IRVIN H. PEAK . . GEORGE 0. DAVIES . . . . . . . President . Executive Vice President Vice President and Secretary Vice President Vice President Vice President . . . . . . . . Treasurer DIRECTORS JOSEPH J. BLACKNALL MELVIN E. DAWLEY ROBERT M. GANGER LEWIS GRUBER WILLIAM J. HALLEY DONALD A. HENDERSON FRANK HOPEWELL ALDEN JAMES HERBERT A. KENT HARRIS B. PARMELE IRVIN H. PEAK F. GLADDEN SEARLE TODD WOOL GENEItA1. COUNSEI. - Perkins, Daniels & Perkins TItANSFF.It AGENT -The New York Trust Co., NewYork,N.Y. R EG I STIt A lt -The National City Bank, New York, N. Y. EXECUTIVE OFFICE-II9 West 40th Street, New York 18, N. Y. CORPORATE OFFICE-IS Exchange Place, Jersey City, N. J. ~ ` L.

1951 1950 WE RECEIVED From sale of our products . . . . . $188,447,431 $167,936,931 OUR COSTS WERE Leaf tobacco, wrapping and other materials and services bought from suppliers ... 73,576,722 62,919,093 Wages and salaries paid to employees . . . 16,544,642 15,073,258 Taxes paid to Federal and State Governments 92,383,768 82,502,981 Other miscellaneous costs - net ..... 815,827 703,831 These expenses totaled ... 183,320,959 161,199,163 LEAVING US A NET INCOME OF 5,126,472 6,737,768 Distributed as follows: To shareholders as dividends 4,355,427 4,842,212 Retained for future growth 771,045 1,895,556 PER COMMON SHARE* Net earnings . . . . . . . . . . . . . 1.78 2.69 Cash dividends . . . . . . . . . . . . 1.50 1.85 Reinvested in the business to furnish better facilities and to use as working capital .. .28 .84 Taxes . . . . . . . . . . . . . . . . 37.01 36.72 Book value . . . . . . . . . . . . . . 22.73 22.73 SHAREHOLDERS' INVESTMENT IN T H E B U S I N E S S ......... 66,549,877 60,876,009 Was supplied by: Preferred shareholders . . . 15% 16% Common shareholders . . . . 43% QD 39% Retained earnings . . . . . . 42`Jo (p 45% W 0 ' Based on 2,496,282 shares in 1951 and 2,246,682 shares in 1950. Q X W ~

H. A. Kent, President, P. Lorillard Company since 1942. IFIear Shareholders: jYTE HAVE prepared a very informative annual report, covering ~/ our operations during 1951 and outlining, in part, the formula for further progress in 1952. By way of comparison, we have taken from our Company archives and are showing here our Annual State- ment covering the year of 1913. In that period, little knowledge of Company inner workings was imparted and no spotlight focused on Management. Those days, we are happy to say, have long since gone, and today constructive thinking and stockholder-enlightenment are the rule. Although it is impossible for us personally to interview each of our stock owners, the report you are reading has been written in a manner that as closely approximates such an interview as possible. The results of our operational program during 1951 make possible Annual report of 1913, folrr-page filldcr typified company statements of the era. On two pages is compressed all infrlrrna- tion early 20th century managements chose to share :cith stockholders of period. this gratifying statement: We have closed the best year in Lorillard history. Old Golds' growth, in percentage terms, was greater than that of any other leading standard size cigarette. Moreover, in the aggregate, Old Gold enjoyed a percentage growth considerably greater than that shown by the entire cigarette industry. The Company's dollar sales of $188,447,430.83 represented a new high record in the Company's history. The net income available for the common stock amounted to $4,440,472.28, equal to $1.78 per share on the 2,496,282 shares of common stock outstanding at December 31, 1951. This compared with $2.69 per share in 1950 and $2.73 per share in 1949 on the 2,246,682 shares of common stock outstanding during those years. Our meeting this year introduces an Amendment to Article XII of the By-laws, "Incentive Compensation for Officers and Key Personnel." The purpose of this change is to provide, under current conditions, substantially the same formula for incentive compensa- tion as was originally adopted by the stockholders four years ago. 3 1P. Pr Crtr, N. 1.. N.:.cll ru, r9~1T........M....1..... .r. TM Tn.wrcr n+P.nfullY roM•ll. ..lalrm~n nf Ihe Rn.n[iJ aqMitlw nf )nur CanPnY u d lh. rbre ur M1unine•. DeremM ~r, i9~} A. rry./ml M IM Trea Indenlere .he C.e...nlr Tn•a Ca.p.nr• Tru.aep. Pu„hued.M..naelYd T'w [:M.I PmA. n, tM1i. ~ror03la' TM diRe.eme~ Eel .n ryr'ra K.nA awl nf II e nwM. ro Wrthuad h.. 4rn .nittm nR .Ln enl.n... The L•hrnun & WII4rorn Tdarm Cunpwr. Lv.nrrlr IM fablAi.rN. M IPI. CmmqnY. hu L.n ..w.d nP n.. p~ r .v4nnllun .rnt I. q.nlN . M IM n..rohe. ~~f Ihi. ~ xnnrcro~ ~•rmm. n~ ni. a i~:rcmmhrn>I> n.>.I The w~ewflheln,nhe• Awhnnl1 rhn~y~. nn.l ex}rnr.nl,h.m.i•n,wnn ....... µY~T.wuq 1'mn~n. nn }~ (LJ•1 14•nl. In~nh.w.l nn•1 ...n..lh.l IT.YMt:.n t':1•ul~•I.II ,,,r~.l flnrnn,n~n}gu.:idn.~d. trr,t.Prnr.n Io11r,.r n µaar/ T.. I~.LI 14•n~l.l^~nha+.lnia In,rm, hn Il,n ,m. ,,. f I IhPI },m n~ IL:L1 I.n.l. 1.IA',NP Y,In,Pi4:a. dUnn r.rydi,nl.nl.,a IL nuh .n I'n4.n.l !c.. TPI ~1'fM Yn}: r19.P Nrt nl'I•li~nl.l•~v. VnrLln. A•..wnr -~- ~ }.v,Y.v:~.I:wI1 !W,I~Iu. IMeml.. YI, IPIY. .,. ITlln~n!'•• Mlvrf:- Ni.i.L,nLn~ .inr an• Trn. . . 'n.1ud.nre sh- i6 hnn.ilh rol.niu..l. 1YNN n 11nCIT, Tn.nrn P. Lorillard Company FINANCIAL 9TATEMENT 1krrwAr)r, rPl/. n.nl 4amr, N.<mn<r,, P'ixl.rr,, ne. _. ,v:/~iP.Pm /P L.ITnlnmx Mnnulrwml •SucP, f),.nlinP 4nl.plien e4~............ Mmn~Pl9 Y SueM. in (hlx•r Caminni.w , Tnxlr~n.rk..ml Nmn.l• .... .......... I9.mP11:•}.41 CMI, ... _ . ........ ........ ..... Ip}I.TYn.Yv Ao.,.m. nnd Nal. w-.nla........... P.wn,leY.n T••Inl Awu }e,l;YV4 jIP2/rl .ununu: ryanl FLnA I'n~l.,n.l ........ . ...il1.Tn},nMm .nnn•m ... .......... 1:,.1'd~MF~M T: Ih.l~l Iu.,nl. ........ .............. In,Tn1WI-16l ;,;/InlAlhnnl. _. ._ ~nIT,,:.,lu A...r.- Inn.na ~n }; rvn.l., Lnrad, Aln~l L IPII . ........... . f1.9n,1AT.lY A-n..l Ini«••.. •,n r N,n„I. L1-nhle Y,iun.r, AAreninlnP, rle }I,tM.I1Pf.a/ Am.nnl.-lllill.l'n,ad n. 4,1?T~InN1 lLn2P,PPe2P T•nnl lenhilni,. µ_ LP6P,fMl.YR snml.. ~uns.d~P.4a

MILLIONS OF 'GROSS SALES DOLLARS A ten-year comparison of inventory with sales. Federal, state, and local taxes Cost of leaf tobacco, wrapping, and other materials and services (bought from others) Wapes and salaries up to $5000 (directly concerned with production) Saiaries of;5000 and over (manayerial and all offwers) Amount set aside for machines and plants wearing out (i.e., depreciation) I TOTAL INVENTORIES 1942 1943 1944 1945 1946 1947 1948 1949 19 50 1951 Amount paid to the owners of the business (dividends to stockholders) Retained in the busineu for future needs and improvements 101 I oG 1o OQ 07. 54¢ .246¢ .43 2.31 .41 49 02A 39l 054 Distribution of the sales dollar. Since that time a number of key people, all specialists in their fields of scientific management, have joined with us. The incentive compensation, as adopted, proved most helpful in meeting competi- tive compensation challenges-in attracting and retaining the key people of specialized management talents, upon whom the future growth of your Company will depend. However, due to one phase of the original Incentive Compensa- tion Plan, these key personnel are now being seriously penalized. Although their efforts are already reflected in our increased cor- porate strength and increased volume and sales position, their yearly earnings, be/ore taxes, have decreased substantially. Quite a few other corporations, including two of your competitors, facing this same situation, have made the necessary changes in their Incentive Compensation Plans and rectified their situation. The proposed Amendment, therefore, simply brings your Com- pany, in the face of the current corporate tax situation, again into a favorable competitive position on compensation for key people. After taxes, the net cost to the Company would be approximately $27,000. !Vho Owns Lorillard We like to repeat our stock ownership setup. Approximately 73% of the shareholders own 100 shares or less. This means we are financed by Main Street. All across the country the friendly mail carrier delivers our dividend checks at the modest homes located on that famous thoroughfare. We like this situation because it makes small holders important. It makes each proxy, for however few shares, spokesman for an individual who works, saves and invests in his future security. It would be most gratifying if all shareholders could meet and talk freely and frankly about our business at the Annual Meeting. Inasmuch as this is impossible, may we request your proxy, in the event you are unable to be present. It is your way to approve or disapprove of our stewardship. At our meeting just a year ago, an Amendment to the By-laws, permitting the transfer of our Annual Meetings from Jersey City to 4 New York City, was approved. As indicated in the proxy we will meet 89300838

to discuss this report in New York's llotel Astor on April 1st. Join us if possible; if not, by all means please sign and return your proxy before you set it aside. It takes a great deal of capital to meet the growing demands of our Company - to keep it modern and to protect it against the risk ever present in a growing business. We in the tobacco business have a problem peculiar to our industry: Nature and the government are both our partners. The first named, through crop failure, could cause a most devastating hardship. As protection against such an event, sizable sums are invested in storage warehouses where large supplies of leaf are stored and aged. The Government Role Our other partner, the government, really holds the controlling interest and sets a minimum price on leaf which serves as a guarantee to the grower. In the auction sales, this minimum price serves as a base figure and, from there on, competition regulates price. When tobacco, which is a cash crop, is ready for manufacture, we pay our governmental partner for Internal Revenue stamps in advance of production. The finished product is shipped to various warehouses for distribution to wholesale and retail outlets. Usually it is a matter of several weeks before shipments are invoiced and paid for. Thus, in our role as processor and tax collector, we must wait these several weeks to recover our investment, meanwhile acting as banker to the government. Our one regret is that the current tax situation, along with in- creased costs, made impossible the payment of a more substantial year-end dividend. Like others, your Company's normal tax was increased to 52% effective April 1, 1951. The excess profits tax rate of 30% was in effect for the full year of 1951. Then, of course, on the current earnings after taxes you must pay another tax on the dividends you receive. We feel this double taxation on corporation earnings distributed as dividends is unfair - and unless some relief is secured, the induce- ment to invest in business will become increasingly less attractive. If this happens, the foundation of our country's strength and growth factor would be weakened considerably. There are organizations, however, dedicated to the elimination of the "double take" on divi- dends. They are doing a most constructive job. When the people affected manifest real interest in such organizations and place more of their support back of them corrective means can be obtained. f'rire f{eliefNeeded On last November 1, in keeping with the government's new tax bill, the Internal Revenue tax on a package of cigarettes was in- creased from seven to eight cents. At that time it was hoped an industry price increase would also be granted. Although this did not materialize, we have high hopes that the O.P.S. will recognize and approve our appeal for relief and permit product repricing at a figure sufficiently high to absorb the ever-mounting costs present in the conduct of a going business. Anyone questioning the need for such action need only consider that the wholesale price of cigarettes, including tax, has increased only 37% since 1939. During the same period, wholesale prices for other commodities rose an average of 131%. We are grateful to all stockholders for their fine support of Man- agement. Some three thousand new names were added to our group of shareholders during 1951, an expression of confidence we greatly appreciate. To new shareholders, and especially those who have joined us since last April, we welcome you into the Lorillard Family and want you to know it is our custom to mail shareholders a post- meeting report containing highlights of the happenings at our Annual Meeting. America is going to continue growing, continue expanding, con- tinue to be the dynamic bulwark of a free world. P Lorillard Com- pany, as the oldest firm in the oldest industry in the country, has weathered all economic disturbances during the past 192 years and looks forward to the future with greater strength than ever before. Respectfullv submitted, 5

General Sales Manager Levis Gruber (seated, behind desk) and sales executives responsible for sales of all Lorillard products except cigars. These were the sales accomplishments IN 1951, your Company's major brands continued to show substantially greater increases than the average for the industry. Old Gold Cigarettes, again this year, continued to grow in sales. In the most highly competitive field, standard size cigarettes (70 mm.), your Company's leading volume brand attained a new record high. Embassy Cigarettes, your Company's brand in the increasingly impor- tant king-size market, increased over 100% in 1951. Embassy's encour- aging growth has led your Company to plan intensified merchandising for this brand in 1952. Muriel Cigars, our leading cigar brand, ran well ahead of the preceding year and showed a much larger percentage of increase than the industry as a whole. Headline Cigars, which late in 1950 were increased in price from 50 to 60, showed a smaller unit volume, but sales results were more satisfactory from a profit standpoint. In the last quarter of 1951, New Currency, an economy cigar brand re- tailing at 50, was introduced in selected markets, for testing purposes. Early reports are encouraging, and a further expansion is planned for 1952. Industry sales of smoking tobacco and loose-leaf chewing tobacco again continued downward in 1951. Your Company's important brands decreased slightly, but at a rate less than the average for the industry. Exports, though continuing relatively small due to currency restriction, took a slight upturn last year. A large percentage of our products exported go to the armed forces, wherever they may be. Our Sales Philosophy From a sales standpoint, 1951 has been a fine year for P Lorillard Corn- pany. It continued to be a period of changing patterns and shifts in mass retailing. We believe our shareholders would like to know that Management is fully cognizant of the powerful trends affecting mass retailing (luring the past decade and has taken steps to meet and make the most of them. Your Company's sales philosophy has been-and is-flexible, based on a clear, straightforward understanding of developments taking place in sell- ing today. 6 Scientific training and merchandising programs have been instituted. 89300840 Cigar Division has four top nten, rvith Vice President Frank Hopewell (scated) in charge as General Manager.

. These have given rise to a completely new order of sales representative. Today the Lorillard sales force is composed of merchandising specialists, experts in modern merchandising and promotional techniques. These spe- cialists are equipped to best serve the best interests of 1,300,000 retailers who handle our products, to help them streamline and make more profit- able their handling of packaged goods. During 1951 alone, important innovations and instrumentations added to our sales plans have proved eminently successful. Still others are planned for the future. Through modern selling and merchandising methods, your Management looks confidently to the future, prepared to meet the challenge of future trends, developments and changes. % OF 1941 SALES 400% 300 % RELATIVE GROWTH OF TAX-PAID SALES SINCE 1941 STANDARD SIZE (70mm,) CIGARETTES GG,? O ~~ OTHER 70mm. B RANDS Source: Old Gold, P. Lorillard annual sales figures. Other brands, H. M. Wootten annual published estimates. '41 '42 '43 '44 '45 '46 '47 '48 '49 '50 7en-vcar rnrnprrrnlit•e sales chrrrt s/rou's suLshutlial Frrnrrl/t of Old Gold in relation to olher popular standard-size cigarettes. '51 7 Sampiing activities ONE OF THE MOST PROFITABLE and effective techniques employed by your Company's Sales Department is Consumer Sampling. A tremendous good will and sales builder, sampling is today one of the major functions of all field personnel. More and more of the specialized sampling work is being handled by your Company's 27 talented girl repre- sentatives. Sampling properly done along carefully planned and proved policy lines by these attractive Lorillard salesgirls has proved highly successful, particularly in connection with military installations and service personnel, n ® Sampling emphasis is placed on military personnel, like National Guardsmen, right. Hospitalized vets always accept free Old Golds from girl samplers gratefully, r1 ~~1'-pv\ At Army medical centers, girls supply Old Golds, n touch of world 'butside" to potients, Mess halls welcome Old Gold girls and their wores ot "chow" and all other times. aww~a a- - CH

THE LEAF Department determines your Company's re- quirements for tobacco of all types, based on current and prospective sales, amount of leaf in storage, probable acreage to be planted and trends in prices. It also processes and stores for proper aging all leaf tobacco, always maintain- ing sufficient inventories to fill at least a two-year manufac- 8 turing requirement for all of your Company's products. At tobacco auction, Executive Vice President R. M. Ganger and Director of Leaf Purchases 1. H. Peak study leaf which will next go to Lorillard plants. lie price of leaf went up in 1951 And again the record high is supported by government price maintenance practices Greater quantities of cigarette tobaccos were purchased during 1951, due to the continuous and substantial increase in the sales of your Company's cigarette brands. During 1951, also, tobacco prices paid to growers con- tinued to advance, due primarily to the government policy of maintaining prices according to parity. The government raised average support prices on flue- cured tobaccos 50 per pound, and our costs for best ciga- rette types reached new heights, despite the fact that the 89300842 Giant hogshcads of tobacco roll into Companr s ntanr rrarehouses to age and mellorc tu o tn four rcars. Bright leaf (below) and Burley tobaccos comprise rast bulk of six domestic types bought by Company.

United States, this year, produced the largest flue-cured crop on record. On our Burley purchases, the government support price rose an aver- age of $4.01 per hundred pounds by grades. Turkish tobaccos averaged about the same as last year, but we were favored in the last quarter by a 50 reduction in duty. Over-all, our leaf costs, though now somewhat higher than in 1950, are considered an excellent investment. So long as the government continues to control acreage and parity, your Company sees no prospect of reduc- tion in the prices that we will have to pay for leaf tobaccos. Out of modern °`mira- cle" machines come wrapped, stamped, sealed Old Gold Ciga- rettes, electronically checked against pack- aging imperfections. ... and further manufacturing efficiencies were achieved 4 TO COMPENSATE in some measure for constantly increased leaf costs, your Mari ufacturing Division continues to do everything pos- sible to even further improve quality standards, increase production, lower costs, effect savings. Certain long-range plant and equipment moderniza- tion projects, completed in 1951, already are showing desired results. In Louisville, Ky., a new modern air-conditioned building was com- pleted in 1951, and a warehouse was converted from storage to manufac- turing. In Jersey City, N. J., new high-speed cigarette machinery was installed. And in Richmond, Va., major improvements begun at our cigar factory in 1950 were completed. Production formerly handled at Middletown, Ohio, was transferred to the new facility at Louisville where it has been absorbed in about one- third the floor space. Consolidation was completed in October, 1951, and the outdated Middletown factory was sold in January, 1952. These moves already are effecting important economies, stepped-up production, even higher standards of quality for products. In 1951, also, the Company sold its plug chewing tobacco brands. Plug tobacco, for the last decade, has steadily lost ground, due to constantly in- creasing costs, decreasing consumer demand. Your Company has retained its more profitable loose-leaf chewing tobaccos. In this field it is a leader. 9 Modern tractor-trailer units carry raw materials into Louisrille's new Q build- ing, finished products out. Functional layout, lat- est equiprnent, com- plete mechanization 'ect manufacturing ccononties in neto plant for smoking tobacco. 89300843

CIGARETTES '' ( 'on 1/>If/j y VVROOes8 Old Gold Embassy Murad Helmar CIGARS Muriel Headline Van Bibber LITTLE CIGARS Between the Acts CHEWING TOBACCOS Beech-Nut Bagpipe Havana Blossom SMOKING TOBACCOS India House Briggs Friends Union Leader -~_- y~'~

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Research Director lJr. ll. R. Pnrnrclc srl upLorillard tobuccorescurch laboratory, has directed its crctiritics since 1929. Science helps Lorillard select the finest raw materials, produce top quality products esearch is an important phase Every item that goes into or around Company products is subjected to most rigorous tests. 12 Chemical analysis of leaf is vital, for type, grade, crop affiect final quality of Lorillard products. Paper must be of exact porosity or cigarette dies out between puffs. SVS00ESg of your Company's operations Y O U R C O M PA N Y'S well-equipped Research Department, staffed by com- petent scientists, continues a full program of quality control and scientific inquiry. Constantly, experiments of two distinct types are conducted: First, there is testing for the present, in a never-ending effort to make our brands competitively superior. Every item used in the manufacture of Company products is analyzed upon purchase, to insure opti- mum quality. In addition, all Lorillard manufactures are tested continually to make certain they meet unvarying, rigid requirements at each stage of production. Cigars, smoking and chewing tobaccos are under constant laboratory scrutiny, but a greater proportion of time is given over to cigarettes, the largest single tobacco item sold today. Second, there is research for the future. On this very important phase of your Com- pany's operation, Management wishes it were possible to be explicit. However, this part of the Research Department's work is labeled "top secret." It is here that all ex- perimental work aimed at new products, acquisition of greater tobacco knowledge and development of new techniques is conducted. Such information must be clas- sified if your Company is to retain its com- petitive edge. The laboratory serves the Company and the consumer by its never-ceasing search for new methods and new ideas, by its dedication to an always-better product.

During worst of Kansas City flood, Lorillard took Lorillard, recipient of fust NATD plaque years Old Golds to flood- and fire-fighters by police boat, ago, receives another for 1951 convention booth. ...and ever- increasing attention is paid to Human relations Y OUR MANAGEMENT believes in conducting Company affairs with the human element in mind. With employees, shareholders, suppliers, distributors, retailers, the public, we try to act always on the principle that sound human relations make for sound business relations. We are proud to hear, more and more each year, that P Lorillard Company is a good place to work. Company-paid group life insurance, liberal sick-benefit plans, coordinated sports programs, sparkling new cafeterias and a pictorial bi-monthly house organ help foster this feeling. The excellent cooperation received during 1951 from Lorillard em- ployees and the fourteen unions representing them has been gratifying evidence of the fine relationship between Management and workers. Of major importance in this connection is your Company's long-time policy of promoting, wherever possible, from within the ranks. The new sc.ientific Sales Training and Personnel Development plan, now in opera- 9Ve00E68 In true civic spirit, giant Old Gold pack foat parades in Richmond festival. tion a full year, has implemented this policy and made its operation more exact. Aimed at recognizing and rewarding merit, the plan has achieved most satisfactory results. Twenty-seven key promotions have been made within the Sales Department during 1951, on the basis of modern job evaluation and merit ratings. Understandably, a preeminent consideration on the part of workers is that of wages. Like everyone else, our thousands of employees, in 1951, were faced with rising living costs. Hence, your Company insti- tuted wage and hourly rate increases all along the line. Merger of the Middletown, Ohio, plant with the Louisville factory offered a challenge in good human relations. Lorillard had been a part of the Middletown community for 39 years. The economic necessity to move endangered employee welfare, community economy and Middle- town's friendly acceptance of P Lorillard Company and its products. 13

Lorillard and Tobacco, history of the Company, has been reqnested by libraries all orcr the rrorld. Employee sports program hclped formation of Lorillard softball. hoacling and basketball teanrs. l)aring 19.51 eleven million Irer,plr enjoycd Lorillard's docnmentary colorfilmson the Amcrican Indian. Hence, some six months before operations were to be terminated, your Company detailed the move and its economic necessity to em- ployees, unions, civic leaders, the entire community. Meetings, employee communications and full-page newspaper ads told the Company's plans: sale of the plant; liberal employee termination allowances; employment cqnsultation service to help workers obtain jobs elsewhere. Public reaction and results proved Management's treatment of this delicate matter sound. Most employees secured other work; the plant was sold; letters, newspaper and radio comment were laudatory; and civic leaders praised our handling and frankness in telling the story. In its relations with the trade, your Company is considered equally successful. We participate wholeheartedly in trade functions and activi- ties. That this attitude pays off in good will is seen by the fact that, in 1951, your Company's exhibit at the convention of the National Asso- ciation of Tobacco Distributors was voted "most popular," drew the greatest attendance, and was awarded a handsome plaque to prove it. The l,ori.llaril Heri.tage, Lorillard and Tobacco, a readable dramatic history of your Company and its nearly 200 years in the tobacco industry, was published and distributed in 1951. All stockholders, many employees, members of the trade, public and school libraries have received this book. To a tremen- dous reading public, Lorillard and Tobacco is bringing the Lorillard story to life. Another undertaking in which your Company takes pride is its series of documentary color films on Indian life. This program, started in 1950, met with success, was expanded in 1951, will continue into 1952. The series is particularly appropriate for Lorillard sponsorship because of your Company's long use of the Indian as its trademark. The films have been seen by millions of viewers in schools, unions, churches, industrial plants, fraternal organizations and over the coun- try's leading TV stations. In 1951, Miracle on the Mesa, one of these films, won the coveted "Oscar" of the Cleveland Film Council as "the finest sales promotion and public relations film produced in the United States in the past year," top tribute that can be paid a sponsored film. Your Management will continue to place emphasis upon the human relations aspect of its work. It considers this a sound approach and one 14 fitting the traditions of P Lorillard Company.

IEIIere's the advertising and sales promotion story Distinction, sincerity, believability make your Company's advertising message convincing and effective T 0 B A C C 0 economists agree that the sales growth of an established ciga- rette brand depends upon the effective- ness of its advertising. Your Management wholly subscribes to this philosophy. Hence, advertising long has been a major Management function in P Lorillard Company. The best index of advertising effective- ness normally is to be found in sales re- sults. In these times of inflated prices, with advertising costs substantially in- creased, a more realistic index must be called upon. Sales gains can be canceled out by the very advertising that helped create them if that advertising is too costly. A more accurate gauge of adver- tising effectiveness, then, is the profitable balance between monies expended for ad- vertising and sales gains effected thereby. The new index must be the advertising cost of attaining sales results. We are therefore glad to report that the substantial increases registered in 1951 on all of our major advertised brands were achieved with a rise in ad- vertising cost of only one-half of one per cent per dollar of sales. How this was accomplished we believe will be of interest to our shareholders. 7elevision h (r Good Ex(tneplo Today, television is our most potent advertising medium. It is also our most expensive. In 1951, network time rates in- creased over 70%, due to greater number of sets in use and the extension of the coaxial cable. Through constant research and analysis, this challenge of increased cost was met and balanced by strategic integration of programs and increased impact of our commercials. The highly popular Miss Muriel -who invites listeners to "pick me up an' smoke 15 8Vg00C6g At nrilitrtry camps hcre and abroarl, Original ~ o Amateur 1[our entcr- " tains troops, is honored. ta Queen for a 1)ay, rec- ord cromd-paller, stops traffic when 200,000 fans /ill Chicago Loop. l[or.se show to Iracl,•cr. Old Gold sponsors 117 Madison Square Garden sports events locrrllr. Radio press calls Uown You Go on Daniont "sn- perior half-haur of firn."

Dennis James, Old Gold TV "salesman," Danc- ing Pack "ad lib" a television commercial. 6Vg00E68 Stop t'1C Music's Bert Parks, "king" of biggest jackpot show of all, se- lects mystery melody. me sometime"-now "rides" on every Lorillard TV network program. By this integration, separate Muriel "spot" pro- grams were eliminated, substantial econ- omies were achieved and the TV audi- ence for Muriel was increased five-fold. Through development of visual trade- marks, such as The Old Gold Dancing Pack and her little Matchbook compan- ion, who dance out a rhythmic animated ad on Old Gold TV programs, high spon- sor identification has been achieved. According to reputable independent analysis, your Company currently is re- ceiving, out of television, the most de- sired commercial impact at lowest cost in the industry. Each of our TV programs differs in nature, format and network, to attract and reach the largest audience possible each week. The Old Gold Original Amateur Hour, with Ted Mack, is carried over 57 NBC television stations every Tuesday night and currently enjoys a higher viewer au- dience than ever before. From all over the country, amateur contestants travel to New York to demonstrate their talents on TV screens, coast-to-coast. Stop the Music, with Bert Parks, ap- pearing over 48 ABC-TV stations every Thursday night for Old Gold, consistently has been one of the most popular audi- ence-participation shows on the air. The Web, with Jonathan Blake, is channeled through 34 CBS-TV stations on Wednesday nights for Embassy ciga- rettes. An unusually realistic show, out- 16 standing in its field, it is today one of television's high-rated mystery shows. During 1951, also, the Company added new TV programs for additional impact in strategic areas for its Old Gold ciga- rettes. From Madison Square Garden in New York City, 117 top sports events are televised to the large sport-fan audience in that area. Queen for a Day, exclu- sively a radio show up to now, is being televised in Los Angeles. Professional baseball was offered in the Seattle area. An intriguing new panel quiz, Down You Go, which has met with considerable critical acclaim, goes out over eight key stations, from WGN-TV (Channel 9), Chicago. Radio Corttinrces Important During the past year, television has materially affected night-time radio lis- tening in key markets. Yet, more than one-half of the population still is un- touched by this new medium. In consideration of these develop- ments, your Company has revised its total investment in radio and considers its present programing in proper bal- ance with the current shift. Special radio emphasis is placed on those areas where television is not yet available, and all areas are properly covered. Five mornings a week, when there is less television competition, Queen for a Day plays over 515 Mutual Broadcasting Company stations. Tl;e original "Cinder- ella" show, Queen is beamed at house- wives and the growing purchases-by- the-carton market which they represent. Additional stations, in non-TV areas, are

being added on this program for 1952. Stop the Music, on 195 American Broadcasting Company stations every Sunday night, continues one of the best "cost per thousand" shows on the air. The Old Gold Original Amateur Hour on 283 ABC stations on Thursday nights salutes a different municipality each week, and once a month has emanated from a city other than New York. Lt the Printed Page Your Company has found high fre- quency advertising in mass consumer magazines with family appeal to be most productive. In Life, Look, Collier's, Sat- urday Evening Post, and Quick, Old Gold magazine advertising appears in color, coordinated in theme and timing with our TV and radio promotions. The Lorillard Message That message continues to impress by its believability and honest sincerity. The intent of Old Gold advertising, unlike competitive cure-all claims, is to place quiet but effective emphasis on the fact that a cigarette is made to give pleasure, and pleasure alone. In its sixth year is the theme "Treat instead of a Treatment." Prestige of the product and Company has been enhanced by the attention-getting statement that "Old Gold cures just one thing - the world's best tobacco." The ever-increasing public approval of these dignified and credible claims is manifested by ever-increasing Old Gold sales to the thinking public. 0Sg00E6e lTle Believe in Public Service It is traditional with P. Lorillard Com- pany that, wherever feasible, it will further philanthropic, civic and worthy causes of all types. Such projects build good will for the firm, benefit acceptance of its products, perform a public service and present Lorillard to the public in its role of corporate good citizen. During the year, the Old Gold Orig- inal Amateur Hour raised substantial sums of money for accredited community projects representing all religions, creeds and races. The show traveled to a dif- ferent city each month, where local audi- toriums were filled to capacity by resi- dents who came to root for home-town amateur talent. Thousands of dollars paid in admission fees in 1951 went entirely into the coffers of beneficiaries such as: the reactivated USO in Wash- ington, D. C.; Cancer Research, Ohio State University; Boys Club, New Haven, Conn.; New York Foundling Hospital, New York; Goodfellows, Memphis; Bap- tist Memorial Hospital, Kansas City; and others. The show went overseas to play Army camps in Europe, as well. Also in 1951 Queen for a Day pro- grams were sponsored in Army, Navy and Marine Corps installations. In each, format and general presentation followed Queen's, but details differed to fit the oc- casion. Genial master of ceremonies Jack Bailey conducted "Admiral for a Day" shows for Navy groups, "King for a Day" programs at a Marine base. 17 Weaving Embassy's Web, Jonathan Blake plays "Your Host in Ad- a•eruure" on television. At New York's Madison Square Garden Amateur Hour and Queen both drew capacity houses. Queen for a Day selects "king," supplies break in military camp rou- tine, builds good will.

P Lorillard Company I7 At Lorillard's Jersey City, N. J., plant, all the Company's cig- arette brands are produced. In addition to Old Gold and Embassy, ull Turkish cigarettes and export brands are manufactured here. In Louisvilic, Ky., Lorillard's newly expanded plant is one of the most modern in the industry. Here the Company manufactures all of its smoking and chewing tobaccos, as well as Old Golds. The factory of Rirhmond. Va., where all Lorillard cigars cire rnanufocturvrl, houses rr.ost modern equipment, refrigerated storagu units, curinq roonis with autornntic hrat and humidity controls. CONSOLIDATED STATEMENT OF INCOME AND EARNED SURPLUS FOR THE YEAR ENDED DECEMBER 31, 1951 With Contparative Figures for 1950 1951 1950 Sales, less Discounts, Returns and Allowances ........ $188,447,430.83 $167,936,931.43 Cost of Goods Sold, Selling, General and Administrative Expenses ...................... 176,034.189.06 154,552,502.91 Operating Income . . . . . . . . . . . . . . . . . . . S 12,413,241.77 $ 13,384,428.52 Olher Income and Expense (net) 92,233.22 291,632.96 $ 12,321,008.55 $ 13,676,061.48 Interest on Long-Tcrm Debt . . . . . . . . . . . . . . . $ 1,034,700.63 $ 839,272.50 Amortization of Debenture Discount and Expense . 30,058.56 12,611.27 Other Interest . . . . . . . . . . . . . . . . . . . . . 312,777.08 191,409.53 $ 1,377,536.27 S 1,043,293.30 Income before Taxes on Income . . . . . . . . . . . . . . $ 10,943,472.28 $ 12,632,768.18 Provision for Federal Income Tax . . . . . . . . . . . . . $ 5,302,000.00 $ 5,087,000.00 Provision for Federal Excess Profits Tax . . . . . . . . . . 286,000.00 564,000.00 Provision for State Income Taxes . . . . . . . . . . . . . 229,000.00 244,000.00 $ 5,817,000.00 $ 5,895,000.00 Net Income for year . . . . . . . . . . . . . . . . . . . . $ 5,126,472.28 $ 6,737,768.18 Earned Surplus at beginning of year . . . . . . . . . . . 27,372,160.03 25,476,604.10 $ 32,498,632.31 S 32,214,372.28 Dividends on Preferred Stock ($7 per share) . . . . . . . . $ 686,000.00 $ 686,000.00 I)ividends on Comnion Stock (1951, $1.50 per share; 1950, $1.85 per share) . . . . . . . . . • 3,669,426.91 4.156,212.25 $ 4,355,426.91 $ 4,842,212.25 Earned Surplus at end of year . . . . . . . . . . . . . . . $ 28,143,205.40 $ 27,372,160.03 Depreciation provided - 1951 $815,827.07 1950 $703,831.25 18 . .......a.......- 1

M and Subsidiary Company CONSOLIDATED BALANCE SHEET- DECEMBER 31, 1951 With Comparative Figures for 1950 , ASSETS LIABI LITIES a ~......h;~.,~u:. (:UItRE N'1' ASSF:'1's: 1951 1950 CIIRREN'1' LIABILITIES: 1951 1950 Cash in banks and on hand . . . . . . . . . . . $ 7,530,826.46 $ 5,933,736.34 Notes payable - banks ............. $ 26,000,000.00 $ 18,700,000.00 Accounts payable - trade ........... 405 3 015 63 3 235 630 11 Accounts receivable - trade (less reserves Twenty Year 3% Debentures (due within one year) , , . 600 000.00 , , . 600 000 00 1951, $639,172.85; 1950, $686,508.30) . . . . . 8,952,647.07 9,075,919.78 Accrued taxes . . . . . . . . . . . . . . . . . , 6,331,960.97 , . 6,385,940.78 Other accounts and notes receivable ....... 448,284.60 425,947.34 Accrued payrolls . . . . . . . . . . . . . . . 435,069.35 599,333.03 Accrued interest . . . . . . . . . . . . . . . 274,500.00 258,071.87 Inventories, at cost: Other accrued liabilities . . . . . . . . . . . 222,760.43 210,256.35 Leaf tobacco . . . . . . . . . . . . . . . . 88,118,881.73 74,585,495.96 Dividends, etc.- funds on deposit, contra .... 666,212.75 1,126,785.34 Manufactured stock and revenue stamps .... 9,124,404.40 6,013,436.71 Total current liabilities . . . . . . . . . $ 37,935,519.13 $ 31,116,017.48 Materials and supplies . . . . . . . . . . . . 4,752,392.55 3,862,248.15 Special deposits-contra . . . . . . . . . . . . 666,212.75 LONC-TF:RM uER'r: 1,126,785.34 Twenty Year 3% Debentures, due October 1, 1963 $ 16,000,000.00 $ 16,600,000.00 Total current assets . . . . . . . . . . $119,593,649.56 $101,023,569.62 ($600,000 to be retired annually 1952-1962) Twenty-Five Year 3% Debentures, due March 1, 1976 15,000,000.00 - 1'1t(IPRRTY PLANT AN[) E/)IJ11'MF:N'r: ($350,000 to be retired annually 1954-1975) 5% Gold Bonds, due August 1, 19i1 ...... - 6,195,450.00 As adjusted December 31, 1932 by autborization of Total long-term debt $ 31 000 000 00 795 450 00 $ 22 stockholders, plus subsequent additions at cost .... , . , , , . , less retirements . . . . . . . . . . . . . . . $ 21,342,441.13 $ 19,433,534.84 Less: Reserves for depreciation . . . . . . . . . 7,141,605.80 6,698,748.90 I:AI'I'1'A1. S'1'OI:K AND SUltl'1.1!S: Total property, plant and equipment . . . $ 14,200,835.33 Capital Stock: $ 12,734,785.94 7% Cumulative Preferred, par value $100 per share : RRANI)S, TRAU13 MARKS AND COODWILI. $ 1.00 Authorized 99,756 shares $ 1.00 Issued 98,000 shares . . . . . . . . . . $ 9,800,000.00 $ 9,800,000.00 UEFF.RREU CHARGES: Common, par value $10 per share: Authorized 5,000,000 shares Issued 2,496,281.89 shares . . . . . . . . . 24,962,818.90 22,466,818.90 Paid-in Surplus . . . . . . . . . 643 852.64 3 1 237 030.01 Prepaid insurance, advertising and taxes ..... $ 680,323.69 . . . . . . . $ 595,652.70 Earned Surplus, as per statement .. , , 28,143,205.40 , , 27,372,160.03 Unamortized debenture discount and expense ... 450,361.04 63,254.60 ($19,872,160.03 not available for cash dividends M iscellaneous . . . . . . . . . . . . . . . . . 560,225.45 on common stock under provisions of debenture 370,212.56 indenture) Total deferred charges . . . . . . . . . $ 1,690,910.18 $ 1,029,119.86 Total capital stock and surplus . . . . $ 66,549,876.94 $ 60,876,008.94 $135,485,396.07 $114,787,476.42 $135,485,396.07 $114,787,476.42 zseooESB 19

"!'o the Board of 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 I)ecember 31, 1951, and the related consolidated statement of income and earned surplus for the year then ended. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing pro- cedures 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 subsidiary company at December 31, 1951, 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. DELOITTE, PLENDER, GRIFFITHS & CO. Certified Public Accountants 111 Broadway, New York, N. Y. February 15, 1952.

qrta~t)lg¢edt- share,~receivee i n ezcS se ~- StaCe'i~n~~ ~Iunicinal Governni'ente ~ . receive, in excise``taees from the_ 'consunter. an ;' Wholesaler and Retailer, from their combined share of The Farmer', out°of`his ehare of t2.90¢, rays Omm Total Direct Tax 12r„rj0 cents 19 Ma ... , r ,,. = ~.~ . us paye for a packagc of etAi`rkYe* , , Tq~ direct taxes alone, into"government'co This heavq tax load is the problem we a11face - you, the shareholder, your Company, all tobacco farmers and distributors, every smoker. These facts have been too narrowly known,,for too long a time. For, we believe, only an in f ormed public can serve its own best interests. VSB00E68 Manufacturer and Shareholder , Jointly receive t4.210, pay income, corporate, payroll, franchise, dividend taxes and Import duty`amounting to 1.10 cents ~ * All fi d b l e ' gures are avera~e ased onest availab efimat , lat". e t Figures represent gross amount received out of each pack of cigarettes to cover costs, operating expenses, profits.

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