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R.J.Reynolds Tobacco Company Winston.Salem, N.C.

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Comparative Summary of Financial Data ,Wes, Earn.i.nqs and Dividends 1950 1949 Net Sales ............................ $759,856,001 $746,345,301 Net Earnings ......................... 40,258,002 40,454,161 Earnings as a percentage of Net Sales .... 5.30010 5. 42 °Jo Earnings per share on 750,000 shares of Preferred Stock ..................... $ 53.68 $ 53.94 Earnings per share on 10, 000, 000 shares of common stocks after Preferred Stock dividends paid ...................... Dividends per share on common stocks.. Dividends on Preferred Stock........... Dividends on common stocks.......... 3.73 3.75 2.00 2,934,000 19,714,748 Financial Position at Year-End Total Assets .......................... $553,997,157 Current Assets ........................ 518,122,816 :. ~ Current Liabilities .................... 108,331,155 Net Current Assets-Working Capital... 409,791,661 Real Estate, Machinery and Equip- ment net .......................... 31,611,618 Funded Debt ......................... 140,000,000 Capital Stock ......................... 175,000,000 Earnings Retained for requirements of the business ........................ 130,666,002 2.00 2,934,000 19,660,886 ;528,529,031 493,678,789 95,472,284 398,206,505 31,153,255 145,000,000 175,000,000 113,056,747

r R. J. REYNOLDS TOBACCO COMPANY Winston-Salem, North Carolina TO THE STOCKHOLDERS: In the past year, sales of the Company amounted to $759,856,001, a record high, being $13,510,700 greater than sales for 1949 when the previous high was reached. Net earnings for 1950 were $40,258,002 as against $40,454,161 for 1949, and were equivalent to 5.30% of sales. For 1950 the net earnings on each of the 10,000,000 issued shares of common stocks amounted to $3.73, compared with $3.75 in 1949. Shipments of the Company's cigarette brands, CAMEL and CAVALIER, were greater in 1950 than in the preceding year. Smoking and chewing tobacco shipments were somewhat less than in 1949. The accrual for the year for taxes based on income was $37,720,890 or $9,249,725 greater than such accrual for 1949. Of this increase about $3,040,000 was due to the recent increase in rates for Federal income taxes and about $2,890,000 to the new Federal excess profits tax. Dividends Dividends paid on the common stocks in 1950 totaled $2.00 a share, the same as in 1949. Four quarterly dividends, each in the amount of 50¢, were paid, whereas in 1949 there were four quarterly dividends of 450 each and a year-end dividend of 200. In the letter to stockholders accompanying the Annual Report for 1949, it was pointed out t~at in increasing the quarterly dividend amount the directors were motivated by the consideration that the stockholders quite generally prefer to receive their dividends for the year on a quarterly basis. Leaf Tobacco Average market prices for flue-cured and burley tobacco Prices reached new highs in 1950. Flue-cured tobacco of the 1950 crop sold at an average price that was 16% greater than such price for the 1949 crop and 224% greater than such price for the 1940 crop. Sale of the 1950 burley tobacco crop has not yet been com- pleted, but the larger part of the crop had been sold prior to January 15, 1951 and brought an average price per pound 9% greater than the average price at which the 1949 crop was sold and 203% greater than the average price for the 1940 crop. Current Assets At the year-end, the total current assets, including and Liabilities inventories, were $518,122,816 and the total current _. . liabilities were $108,331,155, making a ratio of $4.78 of current assets for each $1.00 of current liabilities. Inventories, consisting principally of leaf tobaccos, amounted to $475,836,138, compared with $454,015,671 at the end of 1949. Of the increase in inventories, by far the largest part was in leaf tobacco, reflecting increases in the quantities as well as increased costs of purchases in 1950.

Short-Term Since 1942, a large part of the Company's purchases Borrowings of leaf tobacco has been financed through short-term borrowings from banks under credit agreements. Such loans are generally at their maximum at the end of the burley tobacco marketing season in February and at their minimum before the opening of the flue-cured tobacco marketing season in July. Again, as was the case in 1949, the Company had no such loans outstanding for a part of the summer. In September, the Company entered into a new Credit Agreement with sixteen of its depositary banks. This agreement makes it possible for the Company to borrow from the lending banks, under short-term notes, up to $150,000,000 at any one time. The agreement runs through June, 1955 and replaces the agreement made in 1946. At the end of 1950, the loans outstanding under this new Credit Agreement and those still outstanding under the earlier agreement amounted to $5_6,500,000. Fixed and In 1950 additions to the Company's plant and equipment Other Assets were made at a cost of $2,623,362 and depreciation was charged in the amount of $2,042,106. At the end of the year, the net amount at which the Company's real estate, machinery and equipment were carried was $31,611,618, compared with $31,153,255 at the end of 1949. The valuable brands, trade-marks, and good will of the Company were carried as previously at the nominal amount of $1. Employees The efficient and harmonious efforts of the Company's employees throughout all their varied fields of activities and levels of responsibility had much to do with the success of the operations of the Company through the year. The directors take this opportunity to record their appreciation for the splendid achievements of the employees generally. At the year-end the Company had 11,637 regular employees and 4,645 seasonal employees on its payroll. The percentage of regular employees leaving the Company's employment for any reason, including death and retirement, was the lowest in many years and was greatly below such percentage for industry as a whole as well as for the tobacco industry. About 54% of the regular employees have been in the continuous employ of the Company for ten or more years. During the past year, general wage increases were granted and the Vaca- tion Plan was liberalized. The employee benefit plans, including the Group Life, Health and Accident Insurance Plan, the Employees' Retire- ment Plan and the Hospital and Surgical Service Plan, have been continued. The Company has 439 stockholders for every 100 employees, both regular and seasonal. On the basis of the Company's physical plant and inventories, at the end of 1950 the Company had an average investment of over $32,400 for each job furnished employees, both regular and seasonal. If regular employees only were considered, this amount would be about $45,400. These figures illustrate well the importance in the American free enterprise system of the function of stockholders and investors in furnishing jobs to workers.

F i Stockholders There were 71,478 stockholders of record at the year-end, of whom 59,685 held common stocks and 11,793 held Preferred Stock. These figures do not, of course, include the large number of persons who are owners of the Company's stocks who have the stock registered in the names of nominees of banking institutions or of brokers. In a survey conducted during the year with respect only to the Company's New Class B Common Stock, it appeared that there were about 12,000 persons who owned that class of stock and who had their holdings carried in the names of nominees or brokers. In addition to those having direct ownership in the Company's stocks, there are a vast number of people who are indirectly interested in the Company by virtue either of their interest in holdings of the Company's shares by fiduciaries or of their ownership of securities or policies issued by numerous investment trusts, corporations or insurance companies that hold the Company's stocks. Through December 31, 1950 a total of 230,201 shares of Common Stock had been exchanged for New Class B Common Stock pursuant to the Exchange Option accorded holders of Common Stock under the amendment to the Company's Certificate of Incorporation effective on June 29, 1949. Under this Option, Common Stock is exchangeable on -the basis of one share of Common Stock for one and one-fourth shares of New Class B Common Stock. Seventy-fifth The business of the Company was founded by Mr. R. J. Anniversary Reynolds in 1875. The year 1950 thus marked the Seventy-fifth Anniversary of the founding of the business. There is included elsewhere in this report a brief historical review of the development of the business during the past seventy-five years. The international developments that have occurred in reEent months, with the consequent developing restrictions on normal activities and increases in Federal taxes, are raising many difficult problems for the Company in common with most of the nation's industries. These nation- wide problems will be mastered only by the resoluteness of all who are devoted to the cause of economic and political freedom, and the manage- ment of the Company shares with business of the country and citizens generally a determination to meet the new difficulties as they arise to the end that freedom may be preserved and peace restored. By order of the Board of Directors,

ASSETS CURRENT ASSETS : - -- - - Cash........................... $ 16,266,419.39 Accounts receivable (net) for mer- chandise sold ................... 26 , 020 ,,259 . 50 Leaf tobacco, supplies, manufactured product, etc.-at average cost.... 475,836,137.97 TOTAL CURRENT ASSETS........ ;518,122,816.86 ItEAL ESTATE, MACHINERY AND EQUIP- mENT-at cost ..................... 52, 316, 730.46 Less depreciation, obsolescence, etc. 20, 705,111. 75 NET REAL ESTATE, MACHINERY AND EQUIPMENT ................ OTHER ASSETS: Investments in non-competitive com- panies ........................ 25,000.00 Sundry receivables and deposits.... 2,079,547.12 Brands, trade-marks and good will 1.00 Prepaid expenses and deferred charges ...................... 2,158,173.92 31,611,618.71 4,262,722.04 TOTAL OTHER ASSETS ........... $553,997,157.61 .is a w a

~ 13ACCO COMPANY .iticQecembez 31, 1950 LIABILITIES CURRENT LIABILITIES: Accounts payable ................S 7,631,806.18 Notes payable ................... 56,500,000.00 Funded debt due within one year... 5,000,000.00 Accrued Federal and State taxes .... 38,146,623.39 Sundry accrued accounts.......... 1,052,726.13 TOTAL CURRENT LIABILITIES .... ;108,331,155.70 FUNDED DEBT (Footnote A): 23/% Promissory Notes (due 1952- 1972) ......................... 82,000,000.00 3% Debentures, due October 1, 1973 58,000,000.00 TOTAL FUNDED DEBT........... 140,000,000.00 CAPITAL AND EARNINGS RETAINED: Preferred Stock-Par $100: Authorized and issued 750,000 shares 3.60% Series ................... 9,000,000.00 4.50% Serie$................... . 26,000,000.00 Common Stock-Par $10: Authorized and issued 569,799 shares ........................ 5,697,990.00 New Class B Common Stock- Par $10 (Footnote B): Authorized 15,000,000 shares Issued 9,430,201 shares 4,302,010.00 175,000,000.00 Earnings Retained for requirements of the business (Footnote A).... 130,666,001.91 TOTAL CAPITAL AND EARNINGS RETAINED ................... 305,666,001.91 $553,997,157.61

Statement of Earnings Year Ended December 31, 1950 NET SALES ..................... $759,856,001.08 OTHER INCOME: Interest, dividends and sundry. .. 134, 289.32 Net tax refund for prior years.... 744, 596.14 TOTAL INCOME ............... 760,734,886.54 LESS: Cost of goods sold and other charges including selling and general expenses, but exclusive of items below............... $673,435,490.42 Provision for depreciation and obsolescence ................. Interest charges ............... Debenture expense amortization. Provision for participation in prof- its under Article XII of By- Laws payable to 1,874 officers 2,042,106.62 4,761,458.66 40,147.71 and employees ............... 2,476,790.80 Provision for Federal and State taxes on income .............. 37,720,889.70 TOTAL INCOME DEDUCTIONS. . . NET EARNINGS FOR YEAR....... .. . 720,476,88_3.91- $ 40,258,002.63. Dividends paid on Preferred Stock. a 2,934,000.00 NET EARNINGS APPLICABLE TO COMMON STOCKS .............. 37,324,002.63 8

3 Statement of Earnings Retained Year Ended December 31, 1950 EARNINGS RETAINED FOR REQUIRE- MENTS OF THE BUSINESS-at be- ginning of year ................. ADD: Net Earnings for year .......... DEDUCT: Cash dividends on- Preferred Stock 3.60%'o Series ............... $ 4.50% Series ................ Common stocks at $2.00 per share, consisting of four quar- 1,764,000.00 1,170,000.00 $113,056,747.28 40,258,002.63 153,314,749.91 terly dividends of 50c each.. 19,714,748.00 22,648,748.00 EARNINGS RETAINED FOR REQUIRE- MENTS OF THE BUSINESS-at end of year (Footnote A) ........... $130,666,001.91 Footnote A: The aggregate principa1 payments required annually with respect to the 2~% Promissory Notes and the 3% Debentures, due October 1, 1973, are as follows: 1951- 1957, $5,000,000; 1958-1965, $6,000,000; 1966-1972, $7,000,000; 1973, $13,000,000. So long as either of its 2A% Promissory Notes or any of its 3% Debentures remain out- standing the Company is obligated not to declare dividends (other than stock dividends) and not to make payment on account of purchase, redemption or retirement of any shares of its stock to an extent where such dividend or payment plus the aggregate of all such prior dividends and payments made from January 1, 1946, shall exceed an amount equal to the Net Income of the Company from January 1, 1946, to and including the date of such decla- ration or payment plus i15,000 000, but such limitation does not restrict declaration or Vay- ment of dividends on Preferred Stock. At December 31, 1950, the part of Earnings Retamed not affected by this restriction was $82,658,733.12. Footnote B: Of the authorized but unissued shares of New Class B Common Stock, 569,799 shares are reserved for issuance upon exchange of shares of Common Stock pursuant to the Exchange Option to Holders of Common Stock set forth in the Company's Certificate of Incor ration as amended. Of the 9,430,201 shares of issued New Class B Common Stock 142,449~ shares are held for exchange pursuant to said Exchange Option to Holden o~ Common Stock. 9