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CAMEL, CAVALIER AND WINSTON CIGARETTES

" C/1pKt CIGA/t Lt01 Smoking Tobnoao Principal Brands of Chewing Tobacco

c:-...1'eid..~.'s: • . .. ,-;.r . i 4D WALK A MILE FOR A CAMEL ~t:`-x1`?~T"t~u31V-1AS\R\:,b4 :. . The Famous CAMEL Smoke-Ring Sign-This spectacular sign in its thirteen•year history has become a landmark in Times Square, New York City, where it is seen by more than a miiiion people o day. Typical of many thousands of retail counters throughout the country is this display featuring the Company's products. 12 Advertising The advertising of the Company is desibnrd to earr)' its sales messages to persons in all parts of the country and in all walks of life. Because c-f tlte vast consuming public that must be reac•hecl, a broad advertising program is required. While sub- stantial expenditures are involved, experience has shown that they are more than justified. Placing A1'jxsro.xs on the market, in addition to promoting our two other cigarette brands, nec•es- sitated changes in the over-all advertising program to assure proper advertising support for each hr.md. The basic idea behind our advertising budget- ing is to buy the widest possible circulation of selling messages at the lowest possible cost. This goal deternnines the selection of the various rocdia to be used - television, magazines, newspapers, radio, outdoor and point-of-sale advertising. In selecting the selling messa ges, hoth coltswuc>r research and experienced judgment are brought to bear in developing for each brand the advertising thennes -whic•h will result in maxinnim sales.

hb. The exciting new Bob Cummings Show for WINSTON Fiiter- Tip Cigarettes entertains millions on Sunday nights, NBC-TV. John Cameron Swayze, top-rated news- cosler, brings "Today's News Today", on the "CAMEL News Caravan", NBC-TV. Fun and selling are combined on CAVALtER's "I've Got a Secret" Panel Show, sparked by master salesman Garry Moore, and seen by an estimated 23 million viewers each Wednesday night, CBS-TV. Anne Jeffreys, Bob Sterling and their Saint Bernard entertain Leo Carroll and approxi- mately 21 miDion television viewers in "Topper" for CAMELS on aNernate Friday nights, CBS-TV. "Grand Ole Opry", America's top folk music program, goes into Its sixteenth year of winning friends for PRINCE ALBERT on NBC radio. The "CAMEL Ciubhouse" television show In New York City features Red Barber, famous sportscaster, during the baseball season. ~ ~ v

Vice President Kirk presents an award for a suggestion that resulted in reduced manufacturing cost for PRINCE ALBERT containers. Personnel High morale and efficiency are characteristic of the people of R. J. Reynolds Tohacco Company. These qualities reflect the policies of (1) careful selection of personnel, (2) skilled supervision, (3) genuine interest of management in each employee's Nrell- being, (4) a broad program of benefit plans and (5) encouragement of active participation in the affairs of the Company by employees at all levels. Two new features were added to the compre- hensive personnel program in 1954. A course was made available for all supervisory and clerical per- sonnel on the subject, "How Our Business System Operates". Meeting in discussion groups of hrentv, the participants are given an opportunih• to acquire a new understanding of economics and particularlv how the American business system has produced the highest standard of living in the world. To encourage the origination and development of useful ideas b~- emplovees, the Employee Sug- gestion Plan was established. A steady stream of suggestions for bettering operations of the Com- pany has resulted. Many of the suggestions have brought about material economy in operational costs. Cooperation on the part of employees is ex- A A group of employees studying fundamentais of the American business system. pressed in many ways. In the field of safeh•. for instance, an exceptional record has been estub- lished. The latest available figures show that the plants of the Company are four times safer than the average plant in the tobacco industry and eight times safer than the average manufacturing plant in all industries. Last August the metal can depart- ment completed ten vears - more than a million man-hours-Arithout a single lost-time accident. The attitudes of loyalty and helpfulness displayed by the employees are not confined to thenisel%rs and their Company but extend to the Arhole com- munity as well. Last year the Company's personnel received national recognition for having the hitih- est percentage of contributors to community funds in 1953 among companies with more than 10.tN10 employees. In this past autumn's United Fund cam- paign our emplo~yees bettered their own previous record, with 99.55e contributing. Throughout the Company's plants and offices is displayed a motto which has become a tradition among the employees. It reads: jt'e bcliece in Ourselcesand irn ourFellou• It'orxers-tit'e bclicrc in Our Company and its Prodts'cts-Their Good Name is Our Good Name. 14

YEAR ENDED DECEMBER 31 1964 1963 1952 1951 1950 SALES, EARNINGS AND DIVIDENDS (amounts in thousands of dollars) Net Sales =814,274 $876,189 $881,424 $814,217 $759,856 Income before taxes 103,343 102,873 95,514 92,177 77,979 Federal and state taxes on income 58,516 68,701 63,565 60,060 37,721 Net Earnings 44,827 34,172 31,949 32,117 40,258 Dividends on Preferred Stock 2,894 2,934 2,934 2,934 2,934 Dividends on common stocks 23,732 19,756 19,723 19,715 19,714 FINANCIAL POSITION AND EQUITIES (amounts in thousands of dollars) Current Assets $574,025 $558,394 $553,200 $540,646 s518,121 ' Federal and state tax liabilities 62,279 71,513 65,237 60,594 38,14E Other current liabilities 82,593 66,189 71,979 67,158 70,18! Working Capital 429,153 420,692 415,984 412,894 409,791 Real Estate, Machinery and Equipment-net 40,259 36,395 34,551 32,751 31,61' Total Assets 611,636 598,609 591,641 571,886 553,99: Funded Debt 120,000 125,000 130,000 135,000 140,00( Equity of holders of Preferred Stock 73,317 75,000 75,000 75,000 15,00! Equity of holders of common stocks 279,386 260,907 249,425 240,133 230,66, FINANCIAL STATISTICS Income taxes per share of common stocks* = 5.85 = 6.87 s 6.35 s 6.00 $ 3.7 Earnings per share on common stocks* 4.19 3.12 2.90 2.92 3.7 Dividends per share on common stocks 2.40 2.00 2.00 2.00 2.0 Book value per share of common stocks* 27.94 26.09 24.94 24.01 23.0 *Based on 10,000,000 shares. cA v w

R. J. REYNOLDS TOBACCO COMPANY Financial Position ASSETS CURRENT ASSETS: Cash 1954 $ 23,562,202 Accounts receivable (net) for merchandise sold . . 26,909,345 Leaf tobacco, supplies, manufactured products, etc.- at average cost . . . . . . . . . , . 523,553,988 TOTAL CURRENT ASSETS . . . . . . . . . 574,025,535 REAL ESTATE, MACHINERY AND EQUIPMENT-at COst . . Less depreciation, obsolescence, etc. . . . . . 68,338,682 28,079,095 NET REAL ESTATE, MACHINERY AND EQUIPMENT . . 40,259,587 OTHER ASSETS: Investments in non-competitive companies . . . . Sundry receivables and deposits . . . . . . . Brands, trade-marks and good will ...... Prepaid expenses and deferred charges . TOTAL OTHER ASSETS. . . . . . . . . . . . . 225,000 1,497,715 1 1,628,039 . 3,350,755 $617,835,877 1953 $ 23,299,408 23,828,877 511,265,677 558,393,962 61,931,819 25,53,"015 36,394,804 25,000 1,595,930 1 2,199,7722 3,820,673 $598,609,439 a 16

t December 31, 1954 with Comporative Figures for 1953 LIABILITIES CUNRENT LIABILITIFS: Accounts payable . . . . . . . . . . . N otes payable . . . . . . . . . . . . Funded debt due within one year ...... Federal and state taxes (accrued and contingent ). . Sundry accrued accounts . . . . . . . . . TOTAL CURRENT LIABILITIES . . . . . . . . FUNDED DEBT (Note A ) : 1 << Promissory Notes . 2' .- , Y'( Debentures, due 1973 . . TOTAL FUNDED DEBT . . . . . . . . . . . . . . . . . . . . . . . . CAPITAL AND EARNINGS RETAINED: Preferred Stock-Par $100 Authorized and issued 750,000 shares 3.60 J~ Series . . . . . . . . . . . 4.50<< Series . . . . . . . . . . . Common Stock-Par $10 Authorized and issued, 1954-444,478 shares . . . . . . . . . 1953-456,253 shares . . . . . . . . . New Class B Common Stock-Par $10 (Note B) Authorized 15,000,000 shares Issued, 1954-9,555,522 shares . . . . . . Issued, 1953-9,543,747 shares . . . . . . Earnings Retained for requirements of the business (Note C ) . . . . . . . . . . Less cost of 16,225 shares of Preferred Stock, 3.60% Series, in Treasury . . . . . . . . . . TOTAL CAPITAL AND EARNINGS RETAINED . 1954 $ 5,510,466 69,000,000 5,000,000 62,279,308 3,082,706 144,872,480 66,000,000 54,000,000 120,000,000 49,000,000 26,000,000 4,444,780 95,555,220 175,000,000 179,108,009 354,108,009 1,344,612 352,763,397 $617,635,877 1953 $ 5,735,935 52,500,000 5,000,000 71,512,983 2,953,039 137,701,957 70,000,000 55,000,000 125,000,000 49,000,000 26,000,000 4,562,530 95,437,470 175,000,000 160,907,482 335,907,482 335,907,482 $598,609,439

I •R. J. REYNOLDS TOBACCO COMPANY Statement of Earnings YEAR ENDED DECEMBER 31, 1954-with Comparative Figures for 1953 NET SALES . . . . . . . . . . . . . . OTHER INCO\fE: Interest, dividends and sundry . . . . . . . TOTAL INCOME . . . . . . . . . . . LESS: Cost of goods sold and other charges including selling and general expenses, but exclusive of items below Provision for depreciation and obsolescence . Interest and debt expense . Provision for participation in profits under Article XII of B~~-La.~~s pa~~able to 1,528 officers and employees for 1954 and 1,577 for 1953 ....... Provision for Federal and state taxes on income (includ- ing in 1954 $1,800,000 contingent liability for prior years ) . . . . . . . . . . . . TOTAL INCOME DEDUCTIONS . . . . . , , NET EARNINGS FOR YEAR . . . . . . . , , Dividends paid on Preferred Stock . I\'ET EARNINGS APPLICABLE TO COriMON STOCICS . 1954 1953 $814,273,776 $876,189,581 2,383 31,728 814,276,159 876,221,309 701,647,096 764,723,044 3,411,950 2,679,592 4,685,912 4,87 8,897 1,187,899 1,066,440 58,516,509 68,701,292 769,449,866 84?,049.265 $ 44,826,793 $ 34,172,044 $ 2,894,413 $ 2,934,000 $ 41,932,380 $ 31,238,044 18 ~ N N

A R. J. REYNOLDS TOBACCO COMPANY Statement of Earnings Retained YEAR ENDED DECEMBER 31, 1954-with Comparative Figures for 1953 1954 1953 E.aRxt.cS RETAINED for requirements of the busin ess- at be~inning of ~~ear . . . . . . . . . . $160,907,482 $149,425,673 ADD: Net Earnings for year . 44,826,793 34,172,044 205,73-1,275 183,597,717 DEDUCT: Cash dividends- Preferred Stock 3.(i0', i Series . . . . . . . . ,724,413 ,764,000 -t.50<< Series . . . . . . . . . 1,170,000 1,170,000 Conmion stocks at $2.40 per share f or 1954 ($2.00 per share for 1953) . . 23, 7 31,853 19,756,235 26,626,266 22,690,235 EARNINGS RETAINED for requirements of the business- at end of .•ear ( ilote C ) . . . . . . . . . $179,108,009 $160,907,482 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1954 1OTE A: The ag!gregate principal payments required annually with resp('ct to the 21/z',r Promissory Notes and the 3;: Deben- tures, due October 1, 1973, are as follows: 1955-1957, S5.OlN1.Olx1: 1438-19(t5, $8,000,000; 1986-1972, $7,000,000; 19-, 3, 51~3,tx10,p0p. \OTE B: Of the authorized but unissued shares of New Class B Common Stock, 444,478 shares are reserved for issuance upon ezchange of shares of Common Stock pursuant to the Escham,e Option to Iiolders of Common Stock set forth in the Cowpan)'s Certificate of Incorporation as amended. Of the 9,553,522 shares of issued New Class B Common Stock, 111,119t/2 shares are held for exchange pursuant to said Ex- change Option to holders of Common Stock. NOTE Cs The 21/27r Promissory Notes and the Indenture under which the 31A Debentures are issued contain certain restrictions as to the declaration of dividends (other than stock dividends) on the common stocks of the Company and as to the purchase, redemption or retirement of shares of its stock. At December 31, 19•34, the part of Earnings Retained not af- fected by these restrictions was $129,756,128. U 0 19 0 ~ W ~ ~ N W