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, R. Js R. J. Reynolds Tobacco Company :3OARD OF DIRECTORS JOHN C. WHITAKER E. A. DARR BOWMAN GRAY H. N. HARDY H. S. KIRK W. J. CONRAD A. H. GALLOWAY W. T. SMITHER R. G. VALLANDINGHAM H. H. RAINIM S. M. SCOTT S. B. HANES, JR. WILLIA'M R. LYBROOK KENNETH H. HOOVER ROBERT M. HANES CH AS. B. tiV ADE, JR. REGISTRAR Chairman o f Board o f Directors and Chairmari o f ExecutiLe Committee President Executive Vice President Vice President Vice President Vice President and Secretary Vice President and Treasurer Manager Advertising Department Superintendent o f Lea f Buying General Counsel Comptroller Superintendent o f Lea Associate Counsel Director o f Research Processing Honorary Chairman, Board o f Directors, _Wachovia Bank and Trust Company Personnel 1'lianager TRANSFER AGENTS R. THE HANOVER BANK THE CHASE 1`SA`'HATTA.'V BANK THB FIRST NATIONAL BANK 70 Broadway, New York 15, N. Y. 40 Wall Street, New York 15, N. Y. OF JERSEY CITY 1 Exchange Place, Jersey City 3, N. J. Ln 7 ~ ~ w S

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I F CONTENTS 1957 st®CkhOlders R. J. REYNOLDS TOBACCO COMPANY WINSTON-SALEM, NORTH CAROLINA COMPARATIVE SUMMARY LETTER TO STOCKHOLDERS PRODUCTS 10-YEAR RECORD FINANCIAL STATEMENTS REPORT OF INDEPENDENT CERTIFIED ~ PUBLIC ACCOUNTANTS BOARD ^ OF DIRECTORS 2 3 _ -8 10 12 16 17

COMPARATIVE SUMMARY SALES, EARNINGS AND DIVIDENDS 1956 Net Sales . . $1,053,325,579 $957,366,846 Net Earnin gs . . . . . . . . . 64,160,000 61,912,680 t Net Earnings as a percentage of Net Sales 6.09 '/c k 6 47 i~ . Earnings per share on common stocks before taxes on iuicome* . . . . : $ 13.59 . i $ 13.43 Taxes on income per share of common stocks* 7.44 7.52 Net Earnings per share on common stocks*. 6.15 5.91 Dividends per share on common stocks . 3.30 3.10 Dividends on Preferred Stock 2,656,588 2,762,959 Dividends on common stocks . . . 32,718,477 30, 7 06,583 * Based on 10,000,000 shares. FINANCIAL POSITION AND EQUITIES AT YEAR END Total Assets . . . . . . . . . $713,097,450 $659,393,945 Current Assets . . . . . . . . 6-16,592,766 611,099,605 Current Liabilities . . . . . . . 17 9,985,149 14 7,564,749 Net Current Assets-Working Capital . 466,607,617 463,534,856 Real Estate, Machinery and Equipment-net 63,55 7,065 45,011,65? t Funded Debt . . . . . . . . . 104,000,000 110,000.000 Equity of holders of Preferred Stock 66,57 2,300 68,-183.-100 Equity of holders of common stocks 362,540,001 333,345,796 Number of stockholders at year end . 82,493 81,091 Number of regular employees at year end . 12,188 11,977 t The 1957 figures reflect the adoption of the LIFO method, as explained in this report. 2

R. J. REYNOLDS TOBACCO COMPAN' TO THE STOCKHOLDERS New high records were established in 1957 by the Company in sales, in earn- ings, and in payments to shareowners. For the first time in the Company's history, sales exceeded the billion dollar mark, reaching $1,053,325,579, an increase of $95,958,733 or 10`,1c' over 1956, the previous high year. In the last quarter of the vear, the quarterly dividend rate on the common stocks was increased to 90 cents a share, the highest ever paid by the Company. This marked the fourth increase in the quarterly rate since 1953. Total dividends paid in 1957 on the common stocks amounted to $3.30 a share, as against $3.10 in 1956, 82.60 in 1955, $2.40 in 1954, and $2.00 in 1953. Including dividends on the Preferred Stock, total dividend disbursements in 1957 were $35,375,065, equivalent to 55.1;; of net earnings. Net earnings for the year were $64,160,000, compared with $61,912,680 for 1956. After dividends on the Preferred Stock, the earnings applicable to the 10,000,000 common shares were $6.15 a share, against $5.91 in 1956. During 1956 and prior years, inventories were-valued on the average cost method. Effective for 1957, however, the Company adopted the last-in, first-out (LIFO) method of inventory valuation. By this method, the current costs of replac- ing materials used are more nearly reflected in determining earnings. In 1957, acquisitions of leaf tobacco were made at prices considerably higher than the average cost of tobacco in inventories at the beginning of the year. The effect of LIFO and related adjustments was to reduce earnings before income taxes by 526,897,049 and net earnings by $12,342,049. The resultant income tax saving for the year amounted to $14,555,000. Inventories at the year end were carried at $28,312,68=1 less than they would have been under the previous method.

,D1STR1BUT{ON OF THE 9957 SALES DOLLAR Decision to change the method of inventory valuation was not made until late in the final quarter of the year and consequentlr the esti- mates of earnings for the first three quarters were made on the basis of the previously method. Giving effect to the LIFO method and other year end adjustments, the previously pub- lished estimated interim earnings are restated as follow§: Quarter Ended Net EarninGs Per Comnion Sbare March 31 $13,133,000 $1.25 June 30 15,101,000 1.44 September 30 18,479.000 1.78 Cigarette Sales at Record High The number of cigarettes sold by the Company in 1957 was substantially greater than in any prior vear. Both of the Company's filter-tip brands, WINSTON and SALEM, continued their sales growth. WI;.sTON materially strengthened DISPOSITION OF 1957 NET EARNINGS } Dividends Paid $35,375,065 Increase in Inventories $29,292,961 Increase in Cash and Receivables 6,200,200 Increase in Current Assets 35,493,161 Less Increase in Current Liabilities 32,420,400 Net Addition to Working Capital 3,072,761 Reduction in Funded Debt 6,000,000 Purchase of Preferred Stock 1,501,830 Net Addition to Plant and Equipment 18,545,383 Less Decrease in Other Assets 335,039 Total-Net Earnings for 1957 $64,160,000 its position as the countrv's leading filter-tip ciga- rette, and is now recognized as the fourth largest- selling cigarette among all brands, filtered and non-filtered. SALEM, in the less than two vears that it has been on the market, has alreadv be- come the countrv's leading filter-tip, menthol- flavored cigarette. It is estimated that in 1957 about 4K-c of all cigarettes sold by the industry were filter-tippeci, representing for the first time a larger share of the domestic market than non-filtered, regular- size cigarettes. In view of the continuing growth in popularity of filter-tips, there has again been a decrease in the volume of non-filtered ciga- rettes. This was reflected in the Companv's sales of its CArzEL and CAVALIER brands. CAriEL, ho«•- ever, still remains the countrv's largest-selling cigarette. In June, the list prices of CArsEL and CAVALIER Cigarettes were advanced by 35 cents a thousand. 4

165 761 000 830 383 039 000 I While as in previous years there.was some re- duction in the Company's smoking and chewing tobacco volume, PRI\CE ALBERT Smoking To- bacco and DAYS WORK Chewing Tobacco con- tinue as the largest selling brands in their respec- tive fields. CaRTER HALL Smoking Tobacco, an aromatic blend, which was first introduced in 1956, was made available on a national basis carlv in 1957 and has nlet with gratifying con- sumer acceptance. Plant Expansion for the Company's Growing Business To provide facilities for the Company's grow- ing business, a substantial expansion program is under way. During 1957, the investment made in plant and equipment amounted to $23,982,158. The program contemplates additional expendi- tures of some $50,000,000, including about $20,000,000 for 1958. Research Laboratory Addition. Enlargement of the Research Building has doubled the floor area available for this important activity. The cost of this addition is about $2,000,000. While not all equipment has been installed, the entire office section and about half of the laboratories are al- readv in use. Provision has been made for radio- isotope laboratories where tracer work can be performed to augment present and anticipated studies. A greenhouse has been provided for ex- perimental growing of leaf tobacco. Lexington Project. Near Lexington, Kentuckv, on a tract of 27 0 acres, 24 leaf tobacco storage %varehouses have been constructed. They have a storage capacity of about 130,000,000 pounds. A stemming and redrving plant, steam generat- ing plant and other auxiliary buildings are almost completed. It is expected that the entire project will be finished in the next few months. This facility will increase the Company's capacity for stemming, redrying and storing of leaf tobacco, will enable these operations to be performed on a more efficient basis and will result in further improvement in quality. When the new buildings are completed, it is anticipated that the Com- panv will discontinue use of its old redrving plants at Louisville and Lexington. The entire project is estimated to cost $13,100,000. Brook Cove Project. This plant, which is located near Walnut Cove, North Carolina, a few miles from Winston-Salem, is similar to the Lexing- ton project but is larger. There will be 48 leaf tobacco storage warehouses which will have a capacity of about 260,000,000 pounds. Estimated to cost $20,000,000, this unit is scheduled for completion in 1959. It-is anticipated that this new stemming and redrving plant will replace an old plant located in downtown Winston-Salem. The additional leaf storage facilities will make pos- sible a substantial saving in rentals for leased space. Tobacco Processing Plant. The construction of a new- tobacco processing plant in Winston- Salem is well under way. It is expected that suf- ficient equipment will be installed for the plant to be in partial operation in June, 1958. The estimated cost is $4,700,000. Cigarette Factory. Still in the design stage, a new cigarette factory is to be constructed near Winston-Salem. The cost is estimated at $20,000,000. Completion is anticipated for late in Enlarged Research Building showing new addition at the right

1960 or early in 1961. It is contemplated that this new plant will increase the Company's cigarette production capacity by about 25%. Aluminum Foil Rolling and Converting Plant. Buildings for this operation, which is located in Winston-Salem, have been completed. While much of the equipment has been installed, com- pletion is not expected until Julv, 1958. The esti- mated cost is $5,200,000. This plant, which is in partial operation, is known as Archer Aluminum and is an operating division of the Companv. Among other activities, Archer Aluminum will print a part of certain kinds of the labels and cartons used by the Company. The new facility will provide additional and more efficient means for rolling, laminating and printing of foil. Pro- duction not needed for the Company's own use will be sold to industrial users. Archer Aluminum is presently working with users and prospective users of aluminum foil to develop new products for packaging and other purposes. Employee Relations The progress and accomplishments of the Company have been made possible by the team- work and diligence of its thousands of employees in all their various activities and at all levels of responsibility. Your management believes that this fine cooperation and loyalty result from the feeling of pride that the employees have in their Storage warehouses under construction at Lexington, Kentucky work and the personal satisfaction that they have in their relationships with the Company. Impor- tant in this regard are not only pay rates, benefit plans, and opportunities for advancements but also mutual understanding. Early last year, the Company received national recognition from the United States Chamber of Commerce "for out- standing achievement in creating a better un- derstanding among employees of the operation of its business and the American free-market economy". It has long been the Company's practice to 1911 managerial openings by promotion, and exten- sive training toward this end is provided. To as- sist employees to prepare themselves for larger opportunities with the Companv, there has been put into effect an Educational Plan under which the Company shares the tuition cost for employ- ees who undertake courses of studv that relate to their present positions or other positions to which thev mav reasonably aspire. The Profit Sharing Plan approved by the stockholders at the annual meeting in 1956 hp contributed significantly to impres ployees the importance of efficienci•, mP-, production and avoidance of wastei Under Plan, a portion of the Company's annual prolti.: is paid to the Trustee for credit to eligible em-``,\ ployees in proportion to their respective salaries or wages for the year. One-third of the annual payment is invested by the Trustee in New Class i I t

B Common Stock of the Company and the bal- ance in other assets selected by the Trustee. Benefits under the Plan are payable on retire- ment, death or other termination of employment. The share of the Company's profits for 1957 pay- able to the trust amounted to $4,232,434. For 1956, the amount so paid was $4,020,183. Officers and employees entitled to participate in the profit sharing pavment for 1957 numbered 10,210. As of January 3, 1958, certain changes were made to modernize the Company's group insur- ance programs which have been in effect for many years. This included a new contributory Comprehensive Medical Plan for salaried em- ployees. At the close of 1957, the Company's regular employees numbered 12,188 and its seasonal em- ployees 3,398. The average length of service for regular employees was 16 years. Of the regular emplovees, 8,025 had unbroken service records of 10 or more years, 4,800 of 20 or more years, 2,262 of 30 or more years and 222 of 40 or more years. Number of Stockholders at Record High Continuing the trend of recent years, the num- ber of registered holders of the Company's stocks has further increased to a record high. At the end of 1957, holders of all classes of stock numbered 82,493, including 73,211 holders of common shares and 9,282 holders of Preferred Stock. Holders of common shares increased 1,701 dur- ing ing the year: At the year end the book value of the common stocks was $36.25 a share, as against $33.33 a share at the end of 1956. On behalf of the entire' oyganization, apprecia- tion tion is exp4ssed for the continued confidence, interest an~ helpfulness of the shareowners. T~e year just closed was one of progress. Your manag~xnent- looks with confidence to further substantial progress in the years that lie ahead. _ .._, f -_ Respectfully submitted for the Board of Direetors, \ T Chairman, Board of Directors Vice Chairman, Board of Directors February 1, 1958. :t. President New aluminum foil rolling and converting plant . in Winston-Salem, North Carolina

PRINCIPAL BRANDS OF CHEWING TOBACCO ss J ~

J. REYNOLDS TOBACCO COMPANY _ 10 YE AR Fti E CONDENSED COMPARATIVE ; FINA , 1957t 1956 1955 1954 1953 ;,-,SALES, EARNINGS AND DIVIDENDS ~°{amounts in thousands of dollars) Net Sales $1,053,326 $957,367 $866,426 $814,274 $876,189 Income before taxes 138,606 137,103 121,268 103,343 102,873 Federal and state taxes on income 74,446 75,190 68,000 58,516 68,701 Net Earnings 64,160 61,913 53,268 44,827 34,172 Dividends on Preferred Stock 2,657 2,763 2,794 2,894 2,934 Dividends on common stocks 32,718 30,707 25,737 23,732 19,756 FINANCIAL POSITION AND EQUITIES (amounts in thousands of dollars) Current Assets $ 646,593 $611,100 $566,735 $574,025 $558,394 Federal and state tax liabilities 63,744 71,202 69,574 62,279 71,513 Other current liabilities 116,241 76,363 51,865 82,593 66,189 Working Capital 466,608 463,535 445,296 429,153 420,692 Real Estate, Machinery and Equipment-net 63,557 45,012 41,486 40,259 36,395 Total Assets 713,097 659,394 611,641 617,636 598,609 Funded Debt 104,000 110,000 115,000 120,000 125,000 Equity of holders of Preferred Stock 66,572 68,483 70,686 73,377 75,000 Equity of holders of common stocks 362,540 333,346 304,516 279,386 260,907 FINANCIAL STATISTICS Income taxes per share of common stocks'` $ 7.44 $ 7.52 $ 6.80 $ 5.85 $ 6.87 Earnings per share on common stocksk` 6 15 5 91 5 05 4 19 12 3 . . . . . __ Dividends per share on common stocks 3.30 3.10 2.60 2.40 2.00 Book value per share of common stocks* 36.25 33.33 30.45 27.94 26_09 °Based on 10,000.000 shares, tThe 1957 figures reflect the adoption of the LIFO method, as explained in this report. t11 O O .t3 10 w ~.t v -4 M

RE C OR,D FINANCIAL DATA YEAR ENDED DECEMBER 31 1952 1951 1950 1949 1948 $881,424 $814,217 $759,856 $746,345 $724,921 95,514 92,177 77,979 68,925 60,939 63,565 60,060 37,721 28,471 26,322 31,949 32,117 40,258 40,454 34,617 2,934 2,934 2,934 2,934 1,994 19,723 19,715 19,714 19,661 20,000 $553,200 $540,646 $518,122 $493,678 $497,691 65,237 60,594 38,146 28,971 27,065 71,979 67,158 70,185 66,501 83,397 415,984 412,894 409,791 398,206 387,229 34,551 32,751 31,611 31,153 29,628 591,641 577,886 553,997 528,529 530,698 130,000 135,000 140,000 145,000 150,000 ,• 75,000 75,000 75,000 75,000 75,000 249,425 240,133 230,666 213,056 194,187 • $ 6.35 $ 6.00 $ 3.77 $ 2.84 $ 2.63 t 2.90 2.92 3.73 3.75 3.26 2.00 2.00 2.00 2.00 2.00 24.94 24.01 23.06 21.30 19.42 ® ao EQUITY AND BORROWED, FUNDS AT YEAR END - 1= LLIONS I M fLL1ON~ OF DQLLAR OF DOB ® •az CAPITAL EXPENDITURES AND DEPRECIATION.-~ 0 Im

R. J. REYNOLDS TOBACCO COMPANY ASSETS CURRENT ASSETS: Cash Financial Position .#957 $26,141,981 Accounts receivable from customers (less discounts ) 33,910,491 Leaf tobacco, supplies, manufactured products, etc.- at cost (Note A) . . . . . . . . . . 586,5-10,29-1 TOTAL CURRENT ASSETS . . . . . . . . . 646,592,766 REAL ESTATE, MACHINERY AND EQUIPASENT-at cost . . 99,869,772 Less depreciation and obsolescence ...... 36,312,707 NET REAL ESTATE, MACHINERY AND EQUIPMENT . . 63,557,065 OTHER ASSETS: Investments in non-competitive companies .... 225,000 Sundry receivables and deposits . . . . . . . 486,901 Brands, trade-marks and good will . . . . . . I Prepaid expenses and deferred charges . . . : . 2,2r35.717 TOTAL OTHER ASSETS . 2,947.619 S713,097.-150 12 1956 $ 23,697,2-17 30,155,025 557,2-17,333 611,099,605 78,692,520 33,680,838 45,011,682 225.000 1,555, 776 1 1,471.881 3,2s2.65S $659,393,945 D

:)n December 31, 1957 WITH COMPARATIVE FIGURES FOR 1956 , I t I LIABILITIES CURRENT LIABILITIES: Accounts payable . . . . . . . . . . . \otes payable . . . . . . . . . . . . Funded debt due within one year . ... Fecieral and state taxes (accrued and contingent) . Snndry accrued accounts . . . . . . . . . TOTAL CURRENT LIABILITIES . FumDr•.D DEBT ( \ote B ) : ?' _"~ Promissorv Notes 3;~~ Debentures, due 1973 . TOTAL FUNDED DEBT . . . CAPITAL AND EAR\I\GS RETAINED: Preferred Stock-Par $100 Authorized and issued 750,000 shares :3.60 fo Series . . . . . . . . . . . -I.50r'o Series . . . . . . . . . Common Stock-Par $10 Authorized and issued, 1957-337,492 shares . . . . : . . . . 1956-376,378 shares . . . . • • New Class B Common Stock-Par $10 (Note C) Authorized 15,000,000 shares Issued,1957-9,66`?,508 shares . . Issued, 1956-9,623,622 shares . . Earnings Retained for requirements (\ote D) . . . . . . . of the business Less cost of Preferred Stock, 3.60;"c Series, in Treasury (84,277 shares in 1957; 65,166 shares in 1956) -TUTAL CAPITAL AND EARNINGS RETAINED . . . . 1957r-<'.; , $ 11,985,440 94,475,000 6,000,000 63,744,444 3,780,265 179,985,149 53,000,000 51,000,000 104,000,000 49,000,000 26,000,000 3,374,920 96,625,080 17 5,000,000 261,072,510 436,072,510 6,960,209 429,112,301 $713,097,450 1956 $ 9,681,341 58,450,000 5,000,000 71,202,497 3,230,911 147,564,749 58,000,000 52,000,000 110,000,000 49,000,000 26,000,000 3,763,780 96,236,220 175,000,000 232,287,575 407,287,575 5,458,379 401,829,196 $659,393,945 l

R. J. REYNOLDS TOBACCO COMPANY STATEMENT OF EARNINGS Year Ended December 31, 1957 -with Comparative Figures for 1956 NET SALES OTHER INCOME TOTAL INCOME . . . . . . . . . . . LESS : Cost of goods sold, selling and general expenses,• exclusive of items below . . . . . . . . Provision for depreciation and obsolescence Interest and debt expense Provision for Federal and state taxes on income TOTAL INCOME DEDUCTIONS NET EARNINGS FOR YEAR (Note A) . . Dividends paid on Preferred Stock . NET EARNINGS APPLICABLE TO COMMON STOCKS . 1956 $1 ,053,325,579 $957,366,8-16 88,092 51,630 1,053,413,6 71 957,418,4 76 902,811,683 810,263,229 5,102,760 5,059,382 6,893,228 4,993,185 74,446,000 75,190,000 989,253,671 895,505,796 $ 64,160,000 $ 61.912.680 _ $ 2,656,588 $ 2,762,959 $ 61.503,412 $ 59,149,721 14

c i . . ... _ R. J. REYNOLDS TOBACCO COMPANY STATEMENT OF EARNINGS RETAINED Year Ended December 31, 1957 -with Comparative Figures for 1956 Ea.R-,ixcs RETAINED for requirements of the . at beginning of year ADD: \ et Earnings for year . . . . . . . DEDUCT: Cash dividends- Preferred Stock 3.60`,'~ Series -1.Wc Series business- Common stocks at $3.30 per share for 1957 ($3.10 per share for 1956) . . . . . . . . . 1,486,588 I 1,592,959 1,17 0,000 1,17 0,000 at end of year (Note D) . . . . . . . . _ $261,072,510 1 82:32,287,575 EaR-Nises RETAINED for requirements of the business- NOTES TO FINANCIAL STATEMENTS-DECEMBER 31, 1957 NOTE A: The Company has adopted, effective for 1957, the last-in, first-out method of pricing inven- tories instead of the average cost method previously used. Such change had the effect of reducing the amount stated for inventories at December 31, 1957, by 528;312,68-1 and reduced the net income (after income taxes) by $12,342,049. N OT E B: The principal payments required annually with respect to the 21/3r/c Promissory Notes and the 3% Debentures, due October 1, 1973, are as follows: 1958-1065,56,000,000;1966-1972,$7,000,000;1973, S13.000,000. NOTE C: Of the authorized but unissued shares of New Class B Common Stock, :337,492 shares are re- ser%'ed for issuance upon exchange of shares of Com- mon Stock pursuant to the Exchange Option to Hold- ers of Common Stock set forth in the Company's Certificate of Incorporation as amended. Of the 9,662,508 shares of issued New Class B Common Stock, 84,373 shares are held for exchange pursuant to said Exchange Option to Holders of Common Stock. NOTE D: The 271~~1 Promissorv Notes and the In- denture under which the 3% Debentures are issued contain certain restrictions as to the declaration of_ _ dividends (other than stock dividends) on the com- mon stocks of the Company and as to the purchase, redemption or retirement of shares of its stock. At December 31, 1957, the part of Earnings Retained not affected by these restrictions was $?06,105,0:3?. 15

:REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS R. J. REYNOLDS TOBACCO COMPANY, ITS DIRECTORS AND STOCKHOLDERS We have examined the statement of financial position of R. J. REYNOLDS TORACCO COMPANY as of December 31, 1957, and the related statements of earnings and of earnings retained for the vear then ended. Our examination was made in accordance with generallv accepted auditing standards, and accoi•dinah• included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. We were present when inventories -were taken by the Company and checked procedures followed in determining quantities and valuation. In our opinion, the accompanying statementt of financial position and statements of earnings and of earnings retained present fairly the financial position of the Company at December 31, 1957, and the results of its operations for the year then ended, in conformitv with generally accepted accounting principles which have been applied on a basis consistent -with that of the preceding year. except for the change (in which we concur) to the last-in, first-out method of inventory valuation as explained in Note A. ERNST & ERNST, Certifird Puhlir Arrountnnts Winston-Salem, N. C. Janttrtry •31, 195$ 16

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